Asian stock markets fell sharply on Tuesday, led by heavy losses in semiconductor shares, as investors grew increasingly concerned about the enormous funding requirements of the artificial intelligence boom. At the same time, declining oil prices offered only limited support to bond markets, while uncertainty surrounding the U.S. Federal Reserve’s next policy decision continued to underpin the U.S. dollar.
South Korea’s benchmark KOSPI index plunged more than 8% to a three-month low, triggering a circuit breaker, while Japan’s Nikkei fell 4%. The regional weakness followed a 2.2% decline in the Philadelphia Semiconductor Index, highlighting renewed pressure across the global technology sector.
The latest sell-off came after Nvidia shares dropped 5% overnight following a Wall Street Journal report that the company is in discussions to provide approximately $250 billion in financing guarantees for OpenAI as part of a major data centre project. The scale of the reported financing intensified investor concerns over the capital demands associated with the rapid expansion of artificial intelligence infrastructure.
At the same time, developments in China underscored growing competition within the semiconductor industry. Shares of CXMT Corp, which had surged 466% on their trading debut in Shanghai, reversed course and fell 7% in early trading. Despite the decline, the company’s earlier rally reflected strong investor confidence in China’s expanding semiconductor sector and its ambitions to become a major force in artificial intelligence technologies.
“There is clearly a growing sense of optimism within mainland markets about China’s ability to build a globally competitive AI ecosystem,” said Chris Weston, head of research at Pepperstone.
Investor attention also focused on reports that China has begun manufacturing domestically developed immersion deep ultraviolet lithography machines, a technology long dominated by Dutch supplier ASML. The Information reported the development on Monday, sending ASML shares down 8.5% as investors assessed the implications of increased competition in advanced chipmaking equipment.
The pressure spread across leading Asian technology companies. South Korea’s SK Hynix fell nearly 11%, while Samsung Electronics lost more than 9%. In Japan, Kioxia dropped 18% and Tokyo Electron declined 9.8%, making them among the market’s biggest losers as investors reduced exposure to semiconductor-related stocks.
Chinese equities also retreated, with chipmaking indices moving lower alongside the decline in CXMT shares, reflecting broader caution across the region’s technology sector.
Meanwhile, developments in energy markets continued to shape investor sentiment. Brent crude futures extended Monday’s near 9% decline, falling to $87.55 per barrel after a pause in hostilities between the United States and Iran followed Washington’s abrupt suspension of air strikes on Saturday.
U.S. President Donald Trump said on Monday that the United States was having “good talks” with Iran and that there was a chance of reaching a deal, raising hopes that diplomatic efforts could ease tensions and reduce pressure on global energy markets.
The fall in oil prices helped push benchmark 10-year U.S. Treasury yields around four basis points lower to 4.64%, although shorter-term yields changed little. Markets continued to focus on the Federal Reserve’s policy meeting, with traders pricing in about a 38% probability of a 25-basis-point interest-rate increase on Wednesday.
“The U.S.-Iran War, by propelling the price of crude oil, remains the most important determinant of what will happen to the global economy in the next few months, and, by extension, what informs central bank policy outlooks, at the margin,” said Thierry Wizman, currency and rates strategist at Macquarie Group. “We expect that the (Fed) this week will wish to adopt a tightening bias.”
Expectations of higher U.S. interest rates continued to support the dollar, leaving the euro below $1.14 at $1.1370 and the Australian dollar just under 70 cents. The Japanese yen traded at 163.78 against the dollar, remaining close to a four-decade low and fuelling speculation that Japanese authorities could intervene in the foreign exchange market if the Bank of Japan leaves interest rates unchanged this week.
“If BoJ communication is not hawkish enough and USD/JPY heads higher, traders should anticipate an official response, including verbal intervention, rate checks, or even direct FX market intervention, perhaps on Friday,” Wizman said.
