A worsening sell-off in chipmakers pushed world stocks to a one-month low on Tuesday, with South Korea’s KOSPI triggering a circuit breaker and Nasdaq futures sliding before the US open. Investors are weighing Chinese competition in memory chips, the cost of funding the AI boom, and a Federal Reserve decision due Wednesday.
Investors dumped chipmakers across the globe on Tuesday, and the MSCI All Country World Price index fell 0.6% to its lowest since June 29. Reuters reports the selling followed concerns about Chinese competition and funding of the AI boom, while the possibility of a U.S. interest rate hike as early as this week further dampened the mood.
Asian memory chipmakers take the worst of it
South Korea sat at the centre of the selloff. The KOSPI dived more than 10% to a three-month low, triggering a circuit breaker on the way down as it heads for its largest monthly fall on record, surpassing declines suffered during the Asian financial crisis in 1997.
Shares in memory chipmakers SK Hynix and Samsung Electronics shed more than 12% as their rally unwinds; Reuters notes both are under extra pressure in a market transformed by leverage. The KOSPI had more than tripled in value over the 12 months to June, but it has since shed more than a third of its value from that peak.
The latest rout came after a report that China had begun manufacturing domestically developed immersion deep ultraviolet lithography machines, and Chinese chipmaker CXMT’s strong stock-market debut on Monday, which fuelled concerns about increased competition in memory chips. According to Reuters, Dorian Carrell, head of multi-asset income at Schroders, said “we’re seeing questions over the profitability of the semiconductor space”.
Wall Street splits between chips and everything else
Futures tracking the tech-heavy Nasdaq 100 dropped more than 1% as Nvidia and Micron Technology fell in premarket trading. But the rest of the market held up: CNBC reported Dow Jones Industrial Average futures rose by 520 points, or 1%, as strong earnings from Sherwin-Williams and Coca-Cola boosted the 30-stock benchmark, and S&P 500 futures rose 0.1%.
The damage stayed concentrated in the chip complex, where the VanEck Semiconductor ETF (SMH) shed 3%, led by 5% declines in Micron and Western Digital. Nvidia shares had already shed 5% on Monday after the Wall Street Journal reported the company was in talks to provide roughly $250 billion in financing guarantees for OpenAI as part of a data centre project.
Fed decision and Big Tech earnings come next
Markets have priced about a 36% chance that the Federal Reserve hikes by 25 basis points on Wednesday. CNBC reported that investors expect the central bank to remain on hold, with fed funds futures last pricing in a quarter point hike in September according to the CME FedWatch Tool.
Therefore the week’s earnings carry extra weight. Reuters writes that results from “Magnificent Seven” members Microsoft, Amazon.com, Meta and Apple will be seen as a key test of the market rally, particularly after Alphabet and Tesla spooked investors last week with negative cash flow reports.
Trading involves risk.
Risk Disclaimer
