Asian stocks slump on AI chip selloff, crude price drop; Kospi falls 8%

Asian stocks fell sharply on Tuesday July 28, with South Korea's Kospi index tumbling at the open and triggering a temporary halt in program trading, as renewed worries over artificial-intelligence spending sparked another sell-off in chipmakers and oil prices kept falling.

The Korea Exchange activated a sell-side "sidecar" curb on the Kospi after Kospi 200 futures fell 5% or more from the reference price and held there for at least a minute which was the index's 22nd such halt this year. The mechanism suspends program sell orders for five minutes once triggered.

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The wider MSCI Asia Pacific Index dropped 2.92%, with tech stocks hit hardest. The Kospi plunged 7.89% and Japan's Nikkei fell 3.86%%, while the Topix also lost 2.77%.

The drops followed a 2.2% fall in a US index that tracks major chipmakers. SK Hynix and Samsung Electronics were among the biggest losers in Asia, with SK Hynix's share price falling below the level it first listed at in the US.

The cost of insuring Nvidia's debt against default jumped sharply, even as the company took part in AI deals worth over $750 billion. ASML shares also dropped after a report said that a Chinese state-backed firm had started making certain chip production machines, raising fears this could hurt ASML's sales.

The Japanese yen held steady at 163.75 per dollar, the offshore yuan stayed near 6.7655 per dollar and Hang Seng futures gained 0.02%.

US crude oil slid below $82 a barrel, adding to Monday's steep fall in Brent, which was at $87.65 a barrel, the global benchmark, after the US paused its daily strikes on Iran.

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West Texas Intermediate fell 0.9% to $81.89 a barrel. Bond yields dropped in the US as fears about inflation cooled ahead of this week's Federal Reserve meeting.

Markets face a busy week ahead, with interest rate decisions due from the US Federal Reserve, the Bank of Japan and the Bank of England, plus earnings reports from major tech firms.

Investors want proof that companies spending heavily on AI can justify the cost. Chip stocks stayed weak in the US, with the Philadelphia Semiconductor Index falling for a third day running.

Sandisk, AMD and Nvidia were among the worst performers on the S&P 500.

More than 170 companies in the S&P 500 are set to report earnings this week, including Microsoft, Meta, Apple and Amazon. In Asia, SK Hynix and Samsung will also release results. AI spending remains under close watch after Alphabet shares sold off heavily last week.

Also Read: Explained - Why chip stocks sold off on Monday, dragging Wall Street lower

US government bonds rose on Monday July 27 as tensions in West Asia cooled and oil prices dropped, with strong demand seen at an auction of short-term notes ahead of the Fed's decision.

On the diplomatic front, US President Donald Trump said the US and Iran were in talks to end their conflict but warned that fighting would resume if no deal was reached.