Asian Equities Decline as Technology Sector Contraction Intensifies

Asian Markets Plunge as Investors Halt AI Rally

Asian markets took a sharp downturn on Monday, as investors reassessed the red-hot AI rally and responded to the escalating Middle East situation. The KOSPI benchmark, which is heavily weighted towards chip stocks, plummeted 8% in South Korea, prompting an 20-minute trading halt and marking a decline of almost 17% from its record high last week.

In Japan, the Nikkei fell 3.5% in early trade, while U.S. S&P 500 and Nasdaq 100 futures made small gains. The Nasdaq had dropped 4.2% on Friday, with selling concentrated in semiconductor stocks after a hot jobs report fueled expectations for Federal Reserve interest rate hikes. The AI-led rally, which had been a major driver of the market's recent gains, began to fray last week.

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The two-year Treasury yields rose more than 11 basis points on Friday, and benchmark 10-year Treasury futures were about five ticks lower early on Monday morning in Asia. The market is now bracing for the week ahead, which will be headlined by the giant SpaceX listing, expected to price on Thursday and trade on Friday. The listing is expected to be followed by other mega IPOs in the coming months from Anthropic and OpenAI, raising concerns that it could draw down other assets.

Inflation will also be a key focus this week, with U.S. consumer price data due on Wednesday and central bank meetings in Canada and Europe. The Middle East situation remains delicate, with Brent crude futures up about 2.6% to $95.45 a barrel on Monday morning after an Israeli attack on Beirut prompted Iran to direct a salvo of missiles at Israeli targets. OPEC agreed on Sunday to the fourth increase in its oil output targets in as many months.

In currency trade, the dollar was firm and holding above 160 yen, pushing the Australian dollar to $0.7038. The euro hovered at $1.1518. Bitcoin, which notched its heaviest weekly drop since the collapse of crypto exchange FTX in late 2022, was hovering just shy of $63,000 on Monday.