Samsung, SK Hynix shares plunge on China competition fears

Asian stock markets suffered a sharp decline on Tuesday as technology shares continued to suffer losses following a selloff on Wall Street. Concerns over Chinese semiconductor competition and the returns on AI investments led to heavy declines in South Korean and Taiwanese companies. Oil prices eased but remained high due to increased Middle East tensions.

The MSCI AC Asia Pacific index slipped around 2%, signaling its weakest close since August. South Korea's KOSPI fell 7.2% to a low not seen since July, while Japan's Nikkei 225 dropped 2.7% to 67,200.5. Wall Street's technology sector saw a major sell-off, with the Nasdaq Composite down 0.5% on Monday and the Philadelphia Semiconductor Index sinking 2.7%.

In Asian trading, the Nasdaq 100 futures declined 0.8% and S&P 500 futures lost 0.2%. The sharpest losses were seen in South Korean memory-chip makers SK Hynix, which fell 8.9%, and Samsung Electronics, which dropped 8%. LG Innotek also saw a decline of 8.9%. This semiconductor sector downturn followed reports that China's CXMT was advancing a higher-density 4F² DRAM design, raising competition concerns for established chipmakers.

CXMT shares dropped 2.4%. The technology sell-off spread to other parts of the supply chain, with Taiwan Semiconductor Manufacturing down 1.6%, Foxconn down 2.1%, and Largan down 0.6%. In Japan, Kioxia fell 12.4%, TDK dropped 6.2%, and Murata Manufacturing declined 6.9%. High financing costs and stretched valuations have raised doubts about AI spending returns, making technology stocks vulnerable to earnings disappointments after a nearly 120% rally from the 2022 low.

CEO Hock Tan of Broadcom warned investors that some participants in the AI boom were investing without fully understanding the underlying businesses or technology. Investment strategist Anna Wu noted that the semiconductor sector has become especially sensitive to signs of disappointment after strong gains. While 23 out of 42 AI companies reported earnings beats this year, only 6 of these companies saw a positive market reaction, compared to 7 and 10 in the previous two reporting seasons.

Brent crude prices slipped about 1.1% to around $105.50 a barrel, easing from recent highs but staying near a two-week peak. This price movement was influenced by Houthi attacks on Saudi Arabia's main airport and the uncertain prospects of a Russia-Ukraine energy truce. Investors are now looking to the U.S. consumer price index report for clues on the Federal Reserve's next move, with producer prices and retail sales also due later in the week.