Chip stock sell-off spreads across Asia; Japanese stocks fall over 2%, Korean stocks plunge 6%, programmatic selling paused for 5 minutes

The overnight decline in US semiconductor stocks continued to spill over into Asian markets, compounded by persistently high bond yields and rising oil prices, putting pressure on global risk assets.

On Wednesday, Korea’s KOSPI index at one point widened its losses to more than 6%, becoming one of the hardest-hit markets in Asia-Pacific. The Korea Exchange immediately activated the SIDECAR mechanism, suspending programmatic sell orders to curb the selling pressure.

The MSCI Asia Pacific Index fell over 1% to 273.09. Japan’s TOPIX dropped as much as 2.4%, and the Nikkei 225 also slid by more than 2%.

The main trigger for this correction was a 5% plunge in the US semiconductor index on Tuesday, which rippled throughout Asia. Both Samsung Electronics and SK Hynix slumped about 7%, while Nasdaq 100 index futures continued to weaken.

Meanwhile, the US 30-year Treasury yield intraday on Tuesday touched 5.34%—the highest level since 2007—while the 10-year yield rose to 4.75%, with elevated borrowing costs continuing to weigh on growth stock valuations.

Kazunori Tatebe, Chief Strategist at Daiwa Asset Management, said:

The outlook for the Middle East remains uncertain, and with yields staying high, the market is highly likely to remain in risk-off mode today.

He also pointed out:

Higher yields will push up borrowing costs for hyper-scale cloud companies, raising doubts about their capital expenditure outlook and potential impact on AI infrastructure companies.

Long-end US Treasury yields hovering near multi-decade highs have become one of the core factors weighing on Asia-Pacific equities.

The US 30-year Treasury yield touched 5.34% intraday on Tuesday, the highest since 2007, before closing slightly lower at 5.28%. The 10-year yield hit 4.75% on Tuesday.

During Asia-Pacific hours on Wednesday, the 10-year US Treasury yield held steady around 4.70%. Japan’s 10-year government bond yield fell 1.5 basis points to 2.92%, and Australia's 10-year yield lowered by 3 basis points to 5.06%, reflecting a brief flow of capital back into bonds.

The Federal Reserve’s latest meeting minutes will be released at 2:00 a.m. Beijing time on Thursday, and markets are hoping to glean clues about policy direction. JPMorgan’s Chief Investment Officer for Global Fixed Income, Currencies, and Commodities, Kay Herr, told Bloomberg TV:

The market’s concern is, what exactly is the Fed’s reaction function? The market doesn’t like the reality of lacking forward guidance.

Dan Pan, Americas Economist at Standard Chartered Bank, also noted:

Persistently high inflation risks coupled with fiscal concerns are driving up long-end US yields, keeping overall risk sentiment cautious.

Geopolitical tensions have further heightened market unease.

Wallstreet News mentioned, citing Xinhua News Agency, from Abu Dhabi on August 19: The UAE’s Foreign Ministry announced early on the 19th that, due to the escalating regional situation undermining regional and international peace and security, the UAE has decided to suspend all trade, commercial, and financial dealings with Iran, with resumption to be notified separately.

On the 18th, the UAE Ministry of Defense stated its air defense systems detected two ballistic missiles launched from Iran, one falling outside UAE territorial waters and the other within. The ministry said the country is currently at a high state of alert and prepared to respond to any threats.

During Asia-Pacific hours on Wednesday, crude oil continued its gains. WTI crude oil rose 0.8%, and Brent crude gained 0.67% to $91.63 per barrel.

FOREX.com analyst Fawad Razaqzada commented:

Higher energy costs combined with higher long-term borrowing costs are becoming increasingly unsustainable, and equity investors are finally starting to react, shifting toward more defensive allocations.

In currency markets, the Dollar Index was little changed, the yen held around 159.49, the offshore RMB rate was stable near 6.7469, while the Australian dollar fell slightly by 0.1% to $0.7080.

Gold rebounded slightly, up 0.22% on the day, trading around $4,343 per ounce.