AI Fear Crushes Asian Stocks! Broad Market Plunge Enters Technical Correction — Experts: Greed Has Turned to Fear

Semiconductor sell-offs continued to widen on Tuesday (28th), sending Asian equity markets into a broad selloff and pushing them into technical correction. Investors are grappling with concerns over intensifying competition from China and questioning the funding sources behind the artificial intelligence (AI) boom. Meanwhile, even as oil prices declined due to easing Middle East tensions, market anxiety over a potential Federal Reserve (Fed) rate hike as early as this week remained unabated.

The MSCI Asia-Pacific Index plunged as much as 3.5% during trading, falling over 10% from its June 22 peak, officially entering technical correction territory. Leverage-heavy trading exacerbated volatility in South Korea, where Samsung Electronics and SK Hynix both dropped over 12% at one point, dragging the Kospi index down more than 10% intraday—briefly triggering circuit breakers—and moving toward its largest monthly decline since the 1997 Asian financial crisis.

The Kospi had surged over threefold in the 12 months leading up to June but has since retreated by more than one-third from its peak.

Japan’s Nikkei 225 Index fell around 4%, hitting a two-year low, extending the weakness seen after the Philadelphia Semiconductor Index dropped 2.2% the previous trading session.

Chris Weston, Head of Research at Australian broker Pepperstone, said: "The market isn’t reacting to a single negative catalyst, but rather a confluence of factors—concerns over AI funding sources and China’s emergence as a competitor across the entire semiconductor supply chain—that have collectively triggered the sell-off."

On Monday, The Information reported that China has begun producing its own immersion deep ultraviolet (DUV) lithography equipment, a technology previously dominated by Dutch semiconductor equipment giant ASML (ASML-US). Additionally, ChangXin Memory Technologies (CXMT), the world’s fourth-largest memory manufacturer, completed an $8.6 billion IPO on Monday, becoming the most valuable stock in China’s A-share market.

Kim Seok-hwan, an analyst at Mirae Asset Securities in Seoul, said: "What the market truly fears isn’t CXMT’s current profitability, but its potential to rapidly expand production and compete head-on with South Korean firms in the future."

NVIDIA (NVDA-US) shares plunged 5% on Monday after The Wall Street Journal reported the company is in talks with OpenAI to provide around $250 billion in financing guarantees to support large-scale AI data center projects.

CXMT traded sideways on Tuesday in Shanghai, with its share price down around 3%. In Tokyo, investor-favorite Kioxia tumbled 18%, and Tokyo Electron fell over 11%, ranking among the top decliners.

This week brings several major risk events, including interest rate decisions from the U.S. Federal Reserve (Fed), the Bank of Japan (BOJ), and the Bank of England (BOE), as well as earnings reports from multiple large U.S. tech companies.

Ling Vey-Sern, Executive Director at Swiss private bank UBP, said: "Market sentiment toward AI semiconductor stocks has shifted entirely from greed to fear. Investors now tend to interpret any news as negative and use it as a reason to sell, rather than calmly assessing its actual impact on fundamentals."