Asian Shares Mixed Amid Deepening Tech Selloff and AI Valuation Concerns

Asian markets experienced a mixed trading session on Wednesday, as deepening skepticism regarding artificial intelligence (AI) company valuations and renewed geopolitical tensions between the United States and Iran weighed on investor sentiment. South Korea's Kospi index suffered significant losses, and Japan's Nikkei 225 also declined. In contrast, Hong Kong's Hang Seng and China's Shanghai Composite indices closed higher.

South Korea's Kospi index plunged by 5.98% to close at 5,663.24 points, marking its lowest level since early April, as doubts intensified over whether massive AI investments would generate sufficient returns. Chipmaker SK Hynix (SKHY) shares tumbled between 9.4% and 12.6%, despite the company reporting a more than six-fold increase in quarterly operating profit, as it still fell short of lofty expectations. Samsung Electronics (005930) also saw its shares drop by 4.8% to 8%. In Japan, the Nikkei 225 index fell by 1.49% to 61,434.19, hitting a two-month low. Key Japanese chip-related stocks such as Tokyo Electron (8035) sank 10.6%, Lasertec Corp. (6920) fell 8.3%, Screen Holdings (7735) plunged over 19%, and flash memory chipmaker Kioxia Holdings (285A) plummeted between 13.9% and 15.11%.

Conversely, Hong Kong's Hang Seng Index rose by 1.96% to 25,807.92 points, with the Hang Seng Tech Index climbing 2.84%. Major technology companies like Tencent (0700), Alibaba (9988), and Meituan (3690) led the gains. China's Shanghai Composite Index closed 0.40% higher at 3,828.47 points. In Australia, the S&P/ASX 200 index jumped 1.01% after data showed headline inflation cooled to 3.8% in June, leading traders to scale back rate-hike bets.

The mixed market performance was largely driven by uncertainty surrounding the sustainability of massive investments in the artificial intelligence sector. Concerns were exacerbated by China's progress towards developing cheaper, advanced AI models and its entry into domestic immersion DUV lithography machines, intensifying competition in the chipmaking equipment sector. Additionally, renewed hostilities in the Middle East, including Iranian missile attacks targeting U.S. troops, led to a surge in oil prices. Brent crude futures jumped over 3% towards $87 a barrel, while U.S. West Texas Intermediate (WTI) crude rose to between $81.95 and $82.14 a barrel, fueling concerns about inflation and global interest rates.

Investors remained on edge ahead of the Federal Reserve's interest rate decision. With the new Fed Chair having removed forward guidance, experts are divided on whether the U.S. central bank will hold rates steady or surprise with a hike. Crucial earnings reports from major U.S. tech firms, including Microsoft and Amazon, are also due this week, and will serve as a key test for the resilience of the AI trade. Markets are keenly awaiting these reports to confirm the robust foundation of AI investments.

Analysts suggest that the broader market backdrop indicates a sector rotation rather than outright risk aversion. While valuation concerns persist in AI-related stocks, funds are observed flowing into some traditional sectors. Geopolitical tensions in the Middle East and a potential Fed rate hike are expected to contribute to market volatility. The correction in AI-heavy markets like South Korea and Japan may continue, though markets such as Hong Kong show potential for recovery.