Tech selloff deepens as US inflation sparks AI jitters

Asian markets experienced a sharp decline on Thursday, driven by technology firms suffering a significant rout following the release of US inflation data. European markets showed more resilience, benefiting from a lower exposure to the tech sector and falling oil prices. In Seoul, the Kospi index plummeted 7.6% to close at 5,554.22, while Tokyo's Nikkei 225 fell 4.9% to 64,425.95. Hong Kong's Hang Seng Index dropped 1.0% at 24,062.72, and Shanghai's Composite index decreased by 1.6% to 3,707.48.

The tech sell-off intensified as chipmakers faced steep losses, particularly after TSMC, a market heavyweight, announced record quarterly profits fueled by demand for AI hardware. Despite this positive news, TSMC's shares still fell by 2%. The tech sell-off was primarily attributed to traders exiting chipmakers, mirroring sharp declines on Wall Street.

Dan Coatsworth, head of markets at AJ Bell, noted that the tech sell-off has continued at a rapid pace, further exacerbated by US inflation data which heightened expectations for US interest rate hikes this month. US Treasury bond yields fell, indicating that investors were moving towards lower-risk assets.

The AI investment boom faced additional headwinds as data revealed that the US consumer price index surged more than anticipated to 3.7% in September. This inflationary pressure pressured the Federal Reserve to consider raising rates at least once more, with the bank's decision scheduled for October 28, just a week before the US midterm elections. Given that tech firms heavily rely on borrowing to fund their substantial AI investments, they are especially vulnerable to higher interest rates.