Asian stocks fall amid global chip selloff

July 18, 2024 (MLN): Asian shares declined on Thursday, as a broad tech selloff continued on concerns over tighter US restrictions on chip sales to China, as Bloomberg reported.

Japan and South Korea led the region’s losses, with the Topix index falling as much as 1.5%, partly pressured by a stronger yen.

Tokyo Electron Ltd. faced the brunt of selling for a second day, dropping almost 11%. Taiwan Semiconductor Manufacturing Co. shed 3.4%.

Hong Kong and mainland Chinese shares fluctuated, with the Hang Seng Tech Index losing 1.9% at one point.

US futures edged higher after the S&P 500 fell 1.4% and the Nasdaq dropped 2.9% to record its worst day since 2022.

The latest rout in chip stocks came after Bloomberg reported that the Biden administration told allies it’s considering severe curbs if companies like Tokyo Electron and ASML keep giving China access to advanced semiconductor technology.

Global semiconductor stocks are expected “to remain volatile through US elections,” Citigroup Inc. analysts including Atif Malik wrote in a note. “We believe the US government is likely considering this action as China sales from foreign peers outgrew US equipment makers last year all else being equal.”

Earlier, US chip giants Nvidia Corp., Advanced Micro Devices Inc. and Broadcom Inc. drove a closely watched semiconductor gauge down almost 7% — the biggest slide since 2020 — while in Europe, ASML Holding NV tumbled 11% even after the Dutch giant reported strong orders.

The tech underperformance is coming after a first half which saw megacaps propel the market higher, stretching their valuations and leaving them with a tougher setup for the rest of 2024.

“I won’t immediately abandon the tech trade but there are some concerns over valuation,” said John Woods, chief investment officer for Asia at Lombard Odier. “I think there are opportunities outside of tech.”

Treasuries were steady in early Asian trading after small moves on Wednesday. The Federal Reserve’s Beige Book showed slight economic growth and cooling inflation.

Fed Governor Christopher Waller said the Fed is getting “closer” to cutting rates, but is not there yet.

An index of dollar strength traded around the lowest level in two months. The yen lost ground after rising 1.4% against the greenback Wednesday.

The Bank of Japan is unlikely to raise interest rates this month and will instead cut its bond buying a little more than expected to avoid any fueling of yen weakness, according to a former executive director at the central bank.

Among the major economic data released in the region Thursday, Australia added more than twice the number of jobs economists expected last month, while Japan’s exports grew for a seventh consecutive month in June.

In China, President Xi Jinping will unveil his long-term vision for the economy as he wraps up a twice-a-decade conclave on reform.

West Texas Intermediate, the US oil benchmark, gained again after rising 2.6% Wednesday as investors digested news of wildfires in Canada that threaten 400,000 barrels a day of the country’s oil production.

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