Asian stock market crash: KOSPI plunges 8%, Nikkei drops 3400 points amid selloff in AI-related stocks

The Asian markets opened in deep red on Thursday morning amid a global rout in the tech stocks. The Korean KOSPI plunged nearly 8% on Thursday morning, followed by the Japanese Nikkei at -5%, extending its losing streak for six consecutive sessions.

The selloff was followed by an overnight rout in the US tech stocks after stronger-than-expected inflation numbers prompted investors to book profits in the overheated sectors and themes like AI, data centres and chip making. The September CPI inflation stood at 3.7%, higher than the expectations of 3.6% and the steady rate of 3.4% for July and August.

The tech-heavy NASDAQ 100 index plunged 2%, amid sharp declines in chip makers like NVIDIA (-3.1%), Broadcom (-3.1%), Micron (-4.1%), Advanced Micro Devices (-5.7%), and Intel Corporation (-5.7%).

The elevated inflation levels also increased the bets on imminent rate hikes in the coming policy meeting. According to the CME FedWatch tool, the probability of another 25 bps rate hike in the coming policy meeting jumped to 27% from 22% a day prior. Elevated borrowing costs remain one of the key risks and tailwinds to the AI theme globally, as it remains heavily financed through capital raised via debt.

Why are Asian markets falling?

Taking cues from the overnight rout in the US tech stocks, the chip makers like SK Hynix and Samsung Electronics faced selling pressure as the AI theme loses its shine amid overheated valuations. Shares of SK Hynix fell 11.2%, while memory chip and smartphone maker Samsung Electronics fell 9.4% in Korea on Thursday morning. These two chip makers now account for more than 50% of the Korean market, taking the KOSPI index down by nearly 8% on Thursday.

Similarly, the Japanese AI-related stocks like Kioxia Holdings, Advantest, Lasertec, and SoftBank Group plunged as much as 9% on Thursday, taking the benchmark Nikkei index down by 5%.

Besides the overheated valuations and rising concerns over AI safety, the AI theme is also facing headwinds from China, after its memory chip maker ChangXin Memory Technologies announced a breakthrough in the chip industry by making a next-generation memory cell architecture called 4-F squared. In simple terms, the new chip can accommodate more cells in the same size as its 6-F squared chip than before.

The news sent shockwaves through global chip makers like SK Hynix, Samsung Electronics, and Micron for achieving the feat before them. However, the company continues to face shortages of machines required to manufacture these chips, keeping some hopes alive for existing players.