By Ankur Banerjee
SINGAPORE, Oct 13 (Reuters) - Asian stocks slid to a more than two-month low on Tuesday as a sharp selloff in chipmakers prompted a broader rethink of the AI trade amid heightened competition, driving investors toward the safety of government bonds.
MSCI's broadest index of Asia-Pacific shares outside Japan fell more than 2% to its lowest level since late July, led by the region's AI chipmakers. Nasdaq futures fell 0.77% while European futures were 0.2% lower.
Samsung fell 8% and SK
Hynix dropped 10%. Taiwan's TSMC declined 1.8%, while Kioxia Holdings slid 14%. AI investor SoftBank was 8% lower.
The rout followed a sharp drop in shares of US chipmakers after reports of rapid tech progress by Chinese rival ChangXin Memory Technologies (CXMT) raised the prospect of Chinese firms closing the technology gap.
"The CXMT news appears to have been a clear trigger for the selloff in memory stocks, but I think the bigger story is that investors are becoming much less forgiving of the AI trade," said Charu Chanana, chief investment strategist at Saxo.
"They are questioning not just how much AI demand can grow, but how long today's exceptional profits and margins can last as competition increases."
Investors have ridden the AI wave in the past four years as the massive spending powered corporate profits and economic growth, although worries over concentration risks and whether a payoff from the expenditure will come soon enough have weighed.
South Korea's KOSPI, a market at the heart of the global AI boom, sank more than 6%, in its sharpest one-day drop since July, when a washout in leveraged bets heralded a months-long rout from which Seoul's equity market was tentatively recovering.
Japan's Nikkei slid 2.6%, while Taiwan stocks fell 2%. CXMT itself fell as much as 5.3% to the lowest level since its IPO in July, while China's blue-chip index fell to its lowest in more than a year.
A key test of investor appetite for AI will be the reception for Tencent Holdings' bond sale. The Chinese tech giant is selling dollar and offshore yuan, or dim sum, bonds in a deal on Tuesday expected to raise at least $4.5 billion.
STEADYING BOND YIELDS
The benchmark 10-year yield was down 5 basis points at 5.193%, inching away from the 24-year high of 5.364% it hit last week.
A toxic mix of inflationary pressure from elevated energy prices and worries about ballooning government debt has triggered several bouts of bond selloffs in recent weeks, pushing borrowing costs to multi-decade highs across the globe.
Saxo's Chanana said investors were moving back into Treasuries after the recent sharp rise in yields, but she saw it as "a tactical rally rather than a lasting turnaround."
"Sticky inflation, elevated oil prices and heavy government borrowing remain obstacles to a sustained bond recovery," she said.
Traders are awaiting US inflation data on Wednesday for clues on the Federal Reserve's policy path. They are pricing in an 80.6% chance that the Fed holds rates steady later this month, up from 51% a month earlier, according to the CME FedWatch tool.
EARNINGS TEST AWAITS
Investors' attention will also be on the slew of US bank earnings this week to get a gauge on the impact of the recent surge in Treasury yields on dealmaking, lending growth and funding costs across the industry.
Four of the six largest US lenders, JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo will report results later in the day.
Energy prices are back on the agenda as investors weigh the geopolitical developments in the Middle East and Russia-Ukraine, with Brent crude futures at $105.9 per barrel, near a two-week high.[O/R]
The cautious sentiment helped keep the US dollar near an 18-month high. The euro last bought $1.1173, while the Japanese yen was at 158.34 per US dollar. [FRX/]
(Reporting by Ankur Banerjee in Singapore; Editing by Saad Sayeed and Kate Mayberry)
