Global Stock Markets Suffer Losses Due to AI Concerns

Losses in global stock markets are intensifying amid growing concerns related to AI trade, leading investors to withdraw from one of the most successful market sectors this year. At the same time, increased demand for safe assets is driving up U.S. government bonds. The MSCI index for Asia-Pacific stocks fell by 1.7%, which could lead to the lowest closing level since August. The South Korean KOSPI index, an important indicator of AI-related trade development, dropped by 6.2% as concerns about Chinese competition force investors to exit the tech sector. Shares of SK Hynix and Samsung Electronics fell by about 8% in Seoul, and tech stocks also faced selling in Tokyo and Taipei. Futures on U.S. and European stocks fell, indicating pressure on stock markets. The decline in stocks followed a sell-off on Wall Street, which led to the Nasdaq 100 index dropping to its lowest values this month. The decline in stocks and falling oil prices support demand for bonds. The yield on standard ten-year U.S. bonds fell by five basis points to 5.19% as trading resumed after the weekend. Brent crude oil prices fell by 1.1% to around $105.45 per barrel.

As the U.S. corporate earnings season approaches, interest in AI stocks is waning. Investors are questioning whether significant investments in this technology will justify their costs amid rising interest rates. After a four-year rally that lifted the S&P 500 index by 120% from the 2022 lows, high stock valuations have become more vulnerable to disappointing results. The market is currently in a negative mood, as it hasn't been for a long time, notes Chris Weston, head of research at Pepperstone. According to him, sellers dominate many AI-related trades. Additionally, Hock Tan, CEO of Broadcom, issued a warning that the AI boom has attracted investors whose strategies may be akin to gambling, hinting that some do not understand the risks they are taking.

According to April LaRusse, co-head of asset management at BNY Investments, there are concerns that debt issuances are overshadowing other types of obligations, causing significant concerns in the bond market. Meanwhile, Tencent Holdings has started issuing bonds worth about $5 billion to support growth in the AI sector. The rupee continues to rise, while the dollar has slightly weakened after four days of gains. While the Bloomberg dollar index has slightly decreased, experts note that the stock sell-off has driven investors back to bonds, causing an increase in U.S. debt obligations.