Asian markets recorded heavy losses on Monday, with South Korean and Hong Kong stocks leading the decline as the AI-linked sell-off accelerated, following the negative sentiment from Wall Street. At the same time, investors were attempting to interpret mixed signals from the latest data on China's industrial activity. The correction aligned with losses in Wall Street futures, with Nasdaq futures retreating by 1% amid concerns that the enthusiasm surrounding artificial intelligence has outpaced actual economic fundamentals.
South Korea and Hong Kong at the center of losses
The KOSPI index in South Korea plummeted by more than 5%, a move that triggered a temporary trading suspension, pressured by heavy losses in semiconductor titans, with Samsung Electronics and SK Hynix falling between 4.8% and 6.5%. In Hong Kong, the Hang Seng index recorded a drop of 2.5%, while the Hang Seng TECH sub-index lost over 3%. Across other markets in the region, indices also moved lower, reflecting a cautious start to the week after the losses recorded by US equities last week.
Disappointment over AI and corporate earnings
Investment sentiment toward stocks connected to artificial intelligence deteriorated following recent corporate results in the US, including those from Microsoft. The results highlighted the rising costs associated with heavy AI investments, raising questions about their short-term returns. The sector's outlook remains in focus this week, with earnings announcements expected from Amazon and Alphabet, which are considered barometers for cloud computing and AI-related demand.
Fed, Trump, and a tighter monetary line
Adding to the already strained climate was the news that US President Donald Trump proposed Kevin Warsh for the position of the next chair of the Federal Reserve. Warsh, a former Fed governor, has a long history of emphasizing inflation risks and is traditionally viewed as more "hawkish" regarding monetary policy.
Conflicting signals from the Chinese economy
Data published on Saturday showed that China's official manufacturing PMI fell further below the 50-unit threshold in January, indicating a contraction in factory activity and highlighting continued weakness in domestic demand. Conversely, the private manufacturing PMI from RatingDog, which focuses more on smaller private enterprises, marginally returned to growth territory, offering a more optimistic picture for export-oriented sectors.
Individual Asian markets
In mainland China, the Shanghai–Shenzhen CSI 300 index retreated by 1.1%, while the Shanghai Composite recorded a drop of 1.3% as part of the generalized regional retreat. In Japan, the Nikkei 225 lost 1%, while the broader TOPIX index retreated by 0.3%. In Australia, the S&P/ASX 200 index recorded losses of 1.3%, while in Singapore, the Straits Times Index retreated by 0.3%. Indian Nifty 50 futures remained unchanged at the market opening.
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