Asian Stocks to Fall as Chip Selloff Gains Steam: Markets Wrap

(Bloomberg) — Asian equities were set for early declines following a selloff in technology stocks on concerns the US would impose tighter restrictions on chip sales to China.

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Equity futures for Japan, Australia and Hong Kong all declined, with Tokyo contracts falling 2%, weighed down by a stronger yen and further fallout from heavy selling in chipmakers around the world. The S&P 500 fell 1.4% while the Nasdaq dropped 2.9%, its worst day since 2022.

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. A Wednesday plunge in Tokyo Electron Ltd. led losses in the Nikkei 225 Stock Average.

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. The US is also weighing more sanctions on specific Chinese chip firms linked to Huawei Technologies Co.

The possibility of new chip restrictions “could indeed create the kind of selling that could be the catalyst for a tradable correction in the stock market,” said Matt Maley at Miller Tabak + Co. “Broad indices have become very overbought.”

The bond market saw small moves 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. Australian and New Zealand bonds were steady early Thursday.

The yen was little changed early Thursday after strengthening 1.4% against the greenback in the prior session.

The Biden administration is in a tenuous position. US companies feel that restrictions on exports to China have unfairly punished them and are pushing for changes. Allies, meanwhile, see little reason to alter their policies when the presidential election is just a few months away.

Meanwhile, Donald Trump, speaking in an interview with Bloomberg Businessweek, questioned whether the US has a duty to defend Taiwan — a major hub of semiconductor manufacturing.

“Markets may view the possibility of a second Trump Administration positively,” said Sarah Bianchi at Evercore ISI. “However, it is worth noting that the core of the Trump policy agenda this time – raising tariffs and restricting immigration while largely extending existing tax cuts – points in the direction of lower growth and higher inflation.”

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.

“Much of this year’s equity gains have come from a handful of names currently under direct threat from the political arena,” said Jose Torres at Interactive Brokers. “An important question is if the rest of the market, which generally lacks thrilling tales on a relative basis, can offset the waning momentum in ‘Magnificent Seven’ stocks.”

In Asia, data set for release includes June trade data for Japan, labor market figures for Australia and unemployment in Hong Kong. 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.

Key events this week:

ECB rate decision, Thursday
US initial jobless claims, Philadelphia Fed manufacturing, Conference Board LEI, Thursday
Fed’s Mary Daly, Lorie Logan and Michelle Bowman speak, Thursday
Fed’s John Williams, Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks