SINGAPORE, July 28 - Asian stock markets slumped on Tuesday as semiconductor companies led the retreat amid renewed concern over the vast financing appetite of the artificial intelligence build-out. The move was joined by weakness across other regional equity markets and limited reaction in bond markets despite a fall in oil prices.
South Korea's benchmark fell sharply, with the KOSPI plunging more than 8% to a three-month low and triggering a circuit breaker, while Japan's Nikkei index dropped about 4%. The selloff followed a 2.2% decline in the Philadelphia Semiconductor index on Monday.
Nvidia shares fell about 5% in after-hours trading after a report that the company is negotiating to provide approximately $250 billion in financing guarantees for OpenAI as part of a major data centre initiative. The report heightened investor anxiety about the scale of capital required to support AI-related infrastructure.
Investor enthusiasm for China's semiconductor ambitions was underscored by the earlier extraordinary debut of CXMT Corp in Shanghai, which surged 466% on its first trading day. That strong initial performance was followed by a pullback, with CXMT trading down roughly 7% in early trade.
Market participants noted growing optimism inside mainland China that it can develop a globally competitive AI ecosystem. "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.
The competitive dynamics appeared to weigh on established global suppliers. A report that China has begun producing domestically developed immersion deep ultraviolet lithography machines - a class of chipmaking equipment long dominated by a Dutch supplier - sent that supplier's shares down 8.5%.
Major regional chipmakers recorded steep losses: South Korea's SK Hynix fell nearly 11%, Samsung Electronics declined more than 9%, while in Tokyo heavyweights included Kioxia, down about 18%, and Tokyo Electron, down almost 9.8%.
Markets were also influenced by moves in oil and U.S. Treasury yields. Brent crude futures extended a sharp drop from Monday, falling to $87.55 a barrel after a pause in hostilities between the United States and Iran followed Washington's suspension of air strikes. President Donald Trump said the United States was having "good talks" with Iran and that there was a chance of a deal, remarks that accompanied the decline in crude prices.
The break in fighting helped push benchmark 10-year U.S. Treasury yields down by roughly four basis points to 4.64%, although shorter-term yields were largely unchanged. Traders were still pricing in about a 38% chance of the Federal Reserve raising rates by 25 basis points at its meeting later this week.
Thierry Wizman, currency and rates strategist at Macquarie Group, commented on the relevance of the U.S.-Iran situation for central bank outlooks: "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. We expect that the (Fed) this week will wish to adopt a tightening bias."
Currency markets were affected by expectations of further tightening. The dollar remained supported, keeping the euro below $1.14 at around $1.1370 and the Australian dollar just under $0.70. The yen traded at 163.78 to the dollar, hovering just above a four-decade low amid speculation about potential intervention by Japanese authorities if downward pressure on the yen continues.
Wizman warned that a lack of a hawkish tone from the Bank of Japan, combined with a climb in USD/JPY, could prompt official responses - ranging from verbal intervention to direct action in FX markets, possibly as soon as the end of the week.
Separately, an AI-driven stock recommendation product cited by market participants evaluates Nvidia monthly against a broad universe of alternatives using extensive financial metrics. The product highlighted prior examples it said it identified early, including Siemens Energy and Sandisk, and posed the question of whether Nvidia could be the next similar opportunity.
Overall, the market reaction on Tuesday reflected a confluence of worries about the funding demands of AI infrastructure, heightened competition from Chinese semiconductor firms, falling oil prices tied to a lull in regional hostilities, and persistent expectations for U.S. rate action.