Asian stocks slip as AI rebound fades, banks and chips face fresh pressure

Asian stocks slipped on Tuesday as technology shares and bank stocks experienced renewed weakness, despite early signs of an AI rebound. Oil prices surpassed $107 a barrel, while bond yields remained elevated, keeping investors cautious ahead of the Federal Reserve's policy decision. South Korea's KOSPI declined by 0.9%, Japan's Nikkei 225 remained flat, Hong Kong's Hang Seng fell 0.9%, and mainland China's CSI 300 dropped 0.6%.

In Asian trade, Nasdaq 100 Futures declined by 0.3%, while S&P 500 Futures dropped by 0.3%, indicating that the earlier AI rebound was losing momentum. The MSCI Asia Pacific index fell around 0.5%, as investors grappled with the sustainability of the AI investment boom following calls for tighter safeguards and a slower pace of model development.

AI shares were mixed, while semiconductor stocks turned mixed after Monday's sharp selloff, suggesting cautious investor sentiment. Although SK Hynix regained earlier gains to fall 0.4% and Samsung Electronics followed with a marginal 0.2% decline, Japan's Kioxia rose 2.3%, TDK gained 0.6%, and Murata Manufacturing climbed 3.2%.

Largan increased by 1%, while Sony dropped 1.7%. Kioxia stood out positively among AI-related stocks due to reports of a potential U.S. listing through American depositary receipts that could raise at least $10 billion. Other players in the AI supply chain, including LG Innotek (-1.6%), Luxshare Precision (-2.1%), and Foxconn (-0.2%), experienced declines, while Taiwan Semiconductor Manufacturing rose by 0.2%.

The mixed performance highlights a more selective approach toward the AI trade, as concerns about a slower pace of model development could dampen corporate spending. Nonetheless, OCBC's Head of Wealth Advisory Chez Anbu remains moderately positive on equities, maintaining a long-term AI-driven bull market outlook. OCBC is overweighted in the U.S., neutral on Japan and Asia ex-Japan, and underweighted in Europe.

Chinese shares held up, with the CSI 300 falling 0.6% and the Shanghai Composite dropping 0.5%. Recent data revealed uneven recovery, with industrial activity persisting despite weak consumer spending and investment. Hong Kong's technology shares were mixed, with Alibaba falling 1.4%, Meituan declining 0.9%, Tencent rising 2.9%, Baidu gaining 1.1%, and NetEase advancing 2.9%.

Z.AI dropped 1.5%, while MiniMax declined 2.1%. In Australia, the S&P/ASX 200 fell 0.9%, Singapore's Straits Times slipped 1.2%, Malaysia's KLCI lost 0.8%, Indonesia's Jakarta Composite dropped 0.9%, and the Philippines' PSEi decreased by 1.04%. India's Nifty 50 fell 0.3%. Banks weakened amid warnings from Bank of America that third-quarter investment-banking fees could fall at least 10%, impacting U.S. financial stocks and Japanese lenders.

Meanwhile, the bond market added pressure, with the 10-year US Treasury yield reaching the highest level in nearly two decades, driven by surging energy prices, mounting debt, and inflation. Lower bond prices increase borrowing costs and diminish the present value of future corporate earnings, negatively impacting equity valuations.