Asian Stocks Decline as Chip Selloff Gains Steam: Markets Wrap – Yahoo Finance

July 17, 2024

(Bloomberg) — Asian shares fell on Thursday as worries over tightening U.S. restrictions on semiconductor sales to China deepened a global sell-off in technology shares.

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Stocks in Japan and South Korea fell, with the Tokyo Stock Exchange down 1.5%, weighed down by a stronger yen and heavy selling by chipmakers around the world. Tokyo Electron bore the brunt of the selling for a second straight day, dropping nearly 11%.

Hong Kong and mainland Chinese stock markets were choppy in early trade, with the Hang Seng Technology Index dropping 1.2%.U.S. futures turned higher after the S&P 500 slumped 1.4% and the Nasdaq tumbled 2.9%, its worst since 2022, on Wednesday.

The closely watched semiconductor index fell nearly 7% on losses in shares of U.S. chip giants Nvidia, Advanced Micro Devices and Broadcom, its biggest drop since 2020. Meanwhile, in Europe, shares in Dutch chipmaker ASML Holdings AG fell 11% despite strong orders.

The Biden administration has told allies it is considering tougher restrictions if companies such as Tokyo Electron and ASML continue to give China access to advanced semiconductor technology.

The possibility of new semiconductor restrictions “could actually create a sell-off that would trigger a tradable correction in the stock market,” said Matt Murray of Miller, Tabak & Co. “The broader indexes are overbought.”

Treasuries were stable in early trading in Asia after small moves on Wednesday. The Federal Reserve’s Beige Book showed slight economic growth and inflation slowing. Fed Governor Christopher Waller said the central bank is “close” to cutting interest rates but isn’t there yet. Australian and New Zealand government bonds were little changed.

The dollar index remained at its lowest level in two months. The yen strengthened against the dollar after rising 1.4% the previous day, to its highest level since early June.

The Bank of Japan is not expected to raise interest rates this month and is likely to cut bond purchases slightly more than expected to avoid further weakening the yen, according to a former BOJ governor.

The Biden administration is in a delicate position: U.S. companies feel that export restrictions on China unfairly harm them and are pushing for reform, while allies see little reason to change policy with the presidential election just months away.

Meanwhile, in an interview with Bloomberg Businessweek, President Donald Trump questioned whether the United States has an obligation to defend Taiwan, a major semiconductor manufacturing hub.

“Markets may be optimistic about the possibility of a second Trump administration,” said Sarah Bianchi at Evercore ISI. “But it’s worth noting that the core of this Trump agenda — higher tariffs, immigration restrictions and a significant extension of existing tax cuts — points in the direction of slower growth and higher inflation.”

Tech stocks’ underperformance comes after mega-caps buoyed the market in the first half of the year, inflating valuations and setting the stage for a tougher time in the remainder of 2024.

“Much of this year’s stock rally has come from a handful of stocks that are currently under direct threat from the political arena,” said Jose Torres of Interactive Brokers. “The key question is whether the rest of the market, with its relative lack of thrilling stories, can offset the waning momentum of the ‘Magnificent Seven’ stocks.”

In Asia, June trade data from Japan, labour market data from Australia and unemployment rates from Hong Kong are due to be released. In China, President Xi Jinping is due to lay out his long-term vision for the economy as he concludes the country’s twice-decade reform conference.

The U.S. crude benchmark West Texas Intermediate (WTI) rose again after rising 2.6 percent on Wednesday as investors digested news that wildfires in Canada could cut the country’s crude production by 400,000 barrels per day.

Major events this week:

ECB interest rate decision Thursday
US Initial Jobless Claims, Philadelphia Fed Manufacturing Index, Conference Board LEI, Thursday
Federal Reserve Board members Mary Daly, Laurie Logan and Michelle Bowman to speak Thursday
Fed’s John Williams and Raphael Bostic to speak on Friday

Some of the key market developments:

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