Asian markets make jittery start to Monday

Asian stock markets faced a troubled start on Monday, with investors unsettled by the enormous funding requirements associated with artificial intelligence (AI) technology. This uncertainty loomed over a week marked by a flurry of corporate earnings reports. Meanwhile, the euro weakened in the aftermath of violent protests in France.

Oil prices dropped, providing a slight respite for bonds and Wall Street stock futures, which tempered Asia's losses. The decline in oil prices came after U.S. President Donald Trump waived some sanctions against Russia. However, Trump later stated that a final decision on the matter had not been made. U.S. Secretary of State Marco Rubio indicated that Trump would take up to 60 days to evaluate the economic repercussions of these actions.

Oil futures declined by 1.6 percent, reaching $108.06 per barrel, while U.S. crude futures slipped by 0.7 percent, settling at $100.70 per barrel. In addition, Iran announced that another tanker had struck a mine in the Strait of Hormuz, exacerbating geopolitical tensions. These world events, coupled with the flight to safe havens from equity markets, fueled a surge in sovereign bond prices.

The yield on 10-year Treasury notes fell by three basis points to 5.0645 percent, marking the largest weekly decline in over eight months.

The S&P 500 futures saw a modest increase of 0.5 percent, while the Nasdaq futures rose by 0.8 percent. However, Asian markets struggled due to concerns about the technology sector. Japan's Nikkei index fell by two percent, following a 5.4 percent decline the previous week, as the tech segment suffered. South Korea also experienced a drop of 1.6 percent, having declined over 14 percent in the prior week. The MSCI's broad Asia-Pacific index, excluding Japan, slipped by 0.3 percent.

Economists are increasingly worried that AI revenues may not be enough to offset the substantial initial investments made in AI technology. Additionally, AI infrastructure could face write-downs as it ages, leading to significant reductions in book value, explained My Bui, an economist at AMP, a prominent fund manager. Rising government bond yields and expanding corporate credit spreads are heightening financing costs, making borrowing and refinancing more challenging. This makes it difficult for companies to maintain their AI infrastructure development efforts.

Meanwhile, Indonesian markets began their Monday trading session on a turbulent note, following a stern warning from MSCI regarding potential expulsion from certain indices next year. This news rattled investor confidence in Indonesia, already the country's stock market was the worst performer globally, losing 40 percent of its value so far this year.

MSCI had threatened to downgrade Indonesia's status to standalone, as it was concerned about opacity in ownership and trading practices. However, the index provider stated on Friday that without progress in addressing these concerns, even a downgrade would not accurately reflect the gravity of the situation.