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Japan’s Renesas and South Korea’s SK Hynix led a sharp “summer storm” drop in Asian stock markets on Thursday, deepening a global slump in tech shares and following the heaviest one-day drop in the Nasdaq since 2022.
During Tokyo’s morning session, the broad Topix index of Japanese stocks, which had rallied to an all-time high this month, fell more than 2.5 per cent, wiping out its gains for July and settling at a five-week low. South Korea’s Kospi index, which is heavily weighted towards tech stocks, fell by 1.5 per cent.
The Japanese semiconductor bellwether Renesas dropped by almost 17 per cent — the shares’ biggest one-day plunge in more than 12 years — after disappointing market expectations on profits. Other Japanese semiconductor groups, including Advantest and Tokyo Electron, also fell sharply.
In Seoul, shares of SK Hynix slid 7.3 per cent on Thursday, the biggest drop in 20 months, as investors took profits on concerns about its high valuation and the possibility of slowing artificial intelligence investment by big tech groups.
The stock price drop overshadowed record quarterly sales and the highest quarterly profit in six years at the world’s second-largest memory-chip maker, driven by demand for high bandwidth memory (HBM) chips used in generative AI chipsets.
“HBM just accounts for 10 per cent of Hynix sales but the stock price has gone up too much this year,” said Albert Yong, managing partner at Petra Capital Management, a Seoul-based hedge fund. “We are seeing profit-taking by investors worried about its high valuations and the uncertain prospects of AI spending.”
Shares of Samsung Electronics also fell 2 per cent on Thursday, despite a Reuters report on Wednesday that its HBM3 chips were certified by Nvidia for use in its processors. Investors focused more on the fact that its more advanced HBM3E chips were yet to pass the US company’s qualification tests.
“There are concerns about valuations of AI-related stocks in general,” said Kwak Min-jung, an analyst at Hyundai Motor Securities. “SK Hynix’s stock price could be further dented by Samsung’s supply of advanced HBM chips to Nvidia, but it is likely to take more time for Samsung’s HBM3E chips to meet Nvidia’s standards.”
The abrupt retreat of Japan’s Topix index in recent days coincides with the yen’s continuing surge against the US dollar and what currency traders say is now turning into a rushed exit from the so-called carry trade, in which speculators cheaply borrow yen to invest in higher-yielding assets elsewhere.
Since weakening to ¥161.6 against the dollar on July 10, the yen has strengthened just over 5.7 per cent to ¥152.26 on Thursday. Traders said part of the yen’s rapid reversal was driven by suspected currency intervention by the Japanese authorities this month. But rising expectations of a rate-cutting cycle in the US are now driving the yen even higher.
The possible narrowing of rate differentials between Japan and the US is now a potent factor, said currency traders. There is now growing expectation in markets that the Bank of Japan might raise interest rates at its monetary policy meeting next week. At the same time, markets are pricing in a 0.25 percentage point rate cut by the US Federal Reserve in September.
Bank of America’s chief Japan equity strategist, Masashi Akutsu, described the recent combination of equity and currency volatility as a “summer storm”, with its epicentre in the US. Profit-taking on the large tech stocks has been a dominant theme, he said in a note to clients.
“While some of this rotation may be unwound in the future, it is unlikely to be completely reversed as long as Fed rate cuts are being anticipated,” he wrote.
