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It took just one day to erase all the gains of the year for many of Asia’s major stock markets. Monday’s record declines in several benchmarks were not just driven by recession fears following weak U.S. data and a stronger yen. Growing foreign ownership of Asian chipmakers, the result of a year-long global artificial intelligence boom, is driving the high volatility in these markets.
Japan’s benchmark Nikkei 225 stock index fell 12.4 percent on Monday aVsceker falling 5.8 percent on Friday, making it its worst two-day decline in history, with futures trading briefly halted by circuit breakers. In South Korea, where trading was also halted on the Kospi and Kosdaq cash and futures markets, the benchmark Kospi index fell by a record, down 8.8 percent. Taiwan’s Taiex index fell by a record 8.4 percent.
Friday’s weak U.S. jobs data and subsequent recession fears were partly to blame. In Japan, stock prices have also been under pressure since the central bank raised its benchmark interest rate on Wednesday. The yen has strengthened more than a tenth against the U.S. dollar in the past month, prompting an unwinding of the yen carry trade, in which investors borrow in yen to invest in higher-yielding assets, also contributing to the sell-off.
But shares of the region’s chipmakers, which posted some of the biggest losses on Monday, show there are other dynamics at work. Shares of Taiwan Semiconductor Manufacturing Company, the world’s largest chipmaker, fell a record 9.8 percent, just shy of the 10 percent daily limit. Shares of Samsung Electronics and South Korea’s SK Hynix both fell about 10 percent. In Japan, peer Renesas fell 15 percent, while chip gear maker Tokyo Electron fell 18 percent, bringing declines to 40 percent in the past month.
The impact on broader markets is compounded by these companies’ heavy weightings in local markets. TSMC, for example, accounts for nearly a third of the Taiex index. Samsung Electronics is the largest component in the Kospi index.
Foreign investor buying of Asian chipmakers has hit a record high this year, as the sector has been seen as a major beneficiary of the global artificial intelligence boom. Foreign ownership accounts for about three-quarters of TSMC’s Taipei-listed shares. For Samsung Electronics and SK Hynix, it has also exceeded 50 percent.
Foreign investors were net sellers of more than $1 billion in Korean stocks on Monday, with Samsung alone accounting for the largest share of that amount. TSMC had already seen signs of an exodus last month.
The abrupt shiVscek in tone from this investor base implies that as long as global sentiment remains uncertain, volatility for chipmakers and Asian stock markets will remain elevated.
june.yoon@Vscek.com
