Asian shares wobble as tech rout boosts bonds, dents rate hike bets

Asian markets experienced a significant downturn on Friday amid concerns over the substantial funding needs of the artificial intelligence sector, which heavily impacted the technology industry and led to the most substantial daily rally in U.S. Treasury bonds in over three years. Investors rushed to secure the safety of sovereign bonds and safe-haven currencies, causing a sharp retreat of market expectations for further policy tightening from the Federal Reserve. The probability of a December rate hike fell to 85%, from an earlier 100% probability.

The Nasdaq plunged more than 2%, as Meta's cash outflow due to AI-related expenditures and plans for a two-for-one share split to raise capital weighed heavily on the company's shares. Tesla also saw a 3.1% decline after cutting its 2026 capital spending plans. Meanwhile, the MSCI's broadest index of Asia-Pacific shares excluding Japan dropped 0.3%, marking its fourth consecutive weekly decline.

China's stock market suffered as well, with the Nikkei down 1.3% and the weekly loss totaling 5%. South Korea's KOSPI fell 1.7%, on track for a 4.3% weekly decline, with memory chipmaker SK Hynix leading the losses at 2.5%. Taiwan's market was closed due to a typhoon, and the mainland Chinese blue chips index dropped 1.1%, hitting its lowest level since July 2025. Hong Kong's Hang Seng index edged up by 0.1% after falling 3% on Thursday.

US Treasury bonds became the preferred safe-haven asset, with the 10-year yield falling by 19 basis points, its largest decline since March 2023. The benchmark yield dipped below the 5% level, but analysts remain cautious, noting the presence of inflation, fiscal deficits, and the AI boom as potential catalysts for a market rebound.

However, they believe calmer risk sentiment is necessary before any significant market recovery can take place. Safe-haven currencies such as the yen and Swiss franc gained strength, while the US dollar weakened against major currencies. Gold, which had experienced a nearly 3% drop overnight, remained flat at $4,021.99 an ounce.