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It has taken just one day to erase all gains for the year for many major stock markets in Asia. Monday’s record-breaking decline in several benchmark indices was not just prompted by recession fears from weak US data and a stronger yen. Surging foreign ownership of Asia’s chipmakers — the result of a year-long global artificial intelligence boom — lies behind the remarkable volatility in these markets.
Japan’s benchmark Nikkei 225 stock index plunged 12.4 per cent on Monday after falling 5.8 per cent on Friday, making this its worst two-day decline in history, with futures trading briefly halted by circuit breakers. In South Korea, where trading was also halted for the Kospi and Kosdaq cash and futures markets, the benchmark Kospi index fell by a record, down 8.8 per cent. Taiwan’s Taiex index dropped a record 8.4 per cent.
Weak employment figures in the US on Friday, and the ensuing recession fears, were partly to blame. In Japan, share prices have also been under pressure since the central bank raised its benchmark interest rate on Wednesday. The yen has strengthened by more than a tenth against the US dollar in the past month: that has prompted the unwinding of the yen carry trade, where investors borrow in yen to invest in higher yielding assets, also contributing to the sell-off.
But the region’s chipmaker stocks, which recorded some of the biggest losses on Monday, show that there are other dynamics at work. Shares of Taiwan Semiconductor Manufacturing Company, the world’s biggest chipmaker, dropped a record 9.8 per cent, just shy of the daily limit of 10 per cent. South Korea’s Samsung Electronics and SK Hynix shares both fell by about 10 per cent. In Japan, peer Renesas fell 15 per cent, while chip gear maker Tokyo Electron fell 18 per cent, bringing declines to 40 per cent for the past month.
The impact on broader markets are compounded by these companies’ heavy weightings in the local markets. TSMC, for example, accounts for nearly a third of the Taiex index. Samsung Electronics is the largest constituent in the Kospi index.
Foreign investor buying of Asia’s chipmakers hit a record high this year as the sector was seen to be the main beneficiary in the global AI boom. Foreign ownership accounts for about three-quarters of TSMC’s Taipei-listed shares. For Samsung Electronics and SK Hynix that has also surpassed 50 per cent.
Foreign investors were net sellers to the tune of more than $1bn in Korean stocks on Monday, with Samsung alone accounting for the lion’s share of that amount. TSMC had already seen signs of an exodus over the past month.
The abrupt change in tone from this investor base means that as long as global sentiment remains uncertain, volatility for Asia’s chipmakers and equity markets will remain high.