Stocks slump, bonds leap as AI giants’ spending spooks investors

On October 30, tech stocks experienced a significant decline in Asia, as investors sought safety amid concerns over the high and growing spending on artificial intelligence. Shares of Alphabet, the parent company of Google, plummeted by 12.6% on Wall Street, erasing $500 billion in market value, while Intel and Amazon also suffered losses, with the Nasdaq 100 futures falling 1.4%.

The market's pessimism was not solely due to the uncertain profitability of AI investments; it also stemmed from fears that shareholders would not benefit from the substantial capital being invested.

The cyberattack on Binance, the world's largest cryptocurrency exchange, further unsettled investors, contributing to a decline in bitcoin and other cryptocurrency prices, as well as shares of rival exchanges. This sell-off extended to other markets as well. South Korea's KOSPI fell 5% for an October drop of over 17%, while Japan's Nikkei slid by 3%.

In China, the CSI300, a blue-chip index, was set for its largest monthly decline in a decade, following several weeks of declining AI stocks due to worries about a potential slowdown in demand for chips and data center equipment.

The Federal Reserve's decision on October 28 to keep US interest rates unchanged, with no indication of when a rate hike might occur, amplified the market's risk-averse sentiment. As a result, 10-year US Treasury yields dropped by more than 7 basis points in Tokyo to 4.91%, marking the largest one-month decline since December 2023.

Investors also rushed into bonds, as evidenced by a significant decrease in two-year yields to 4.57%. The Bank of Japan was expected to maintain its interest rates on hold during a meeting on October 30, further bolstering the appeal of haven currencies, such as the yen and Swiss franc, which both showed modest gains against the US dollar.