Asia stocks fall as tech firms struggle to claw back losses

Asian stocks declined on Wednesday as investors battled to recover from a sharp drop in technology shares the previous day, following negative remarks from Dutch chipmaker ASML. The Nikkei 225 in Tokyo closed 0.1% lower at 67,744.29 points, the Hang Seng Index in Hong Kong fell 0.1% to 24,314.17 points, and the Shanghai Composite Index ended down 0.9% at 3,767.23 points.

Tech companies suffered significant losses on Tuesday due to worries about China's progress in artificial intelligence chip development and ASML's boss comparing the AI purchasing frenzy to gambling. SK hynix and Advantest in South Korea were particularly hard hit, causing their stocks to drop towards levels seen during their summer decline.

While all three markets saw an early rebound on Wednesday, Tokyo and Seoul were unable to stay above the mark, with traders expressing disappointment after ASML's earnings report. Taiwan's Taiwan Semiconductor Manufacturing Company (TSMC), a key player in the semiconductor industry, reported a rise in third-quarter net profit and increased its sales forecast for the year, citing strong demand for AI and plans to expand production.

However, TSMC warned that demand was currently exceeding supply, and the company is looking into ways to boost production capacity by 2028, beyond the 30% increase announced earlier. Investors are closely watching TSMC's upcoming earnings report on Thursday to gauge the health of the AI investment cycle. ASML and TSMC's performance serves as a barometer for the demand for advanced chips and the progress of chipmakers in meeting that demand.

Despite the losses, markets showed resilience, with gains observed in Wellington, Jakarta, London, Paris, and Frankfurt, driven by hopes that the US Federal Reserve might avoid further interest rate hikes next year. John Williams, the Federal Reserve's New York branch president, indicated that the central bank may hold off on additional rate hikes after the recent increases.

However, labor market indicators and persistent price pressures above the central bank's target for over five years have raised concerns about the likelihood of another rate hike at the upcoming meeting on October 28. The recent attacks on Saudi Arabia by Iran-backed Houthis, which caused the death of 13 people and disruptions in oil operations, added to the geopolitical worries, with the International Monetary Fund (IMF) boss Kristalina Georgieva warning about the potential negative impacts on the global economy.