The sudden slump in Asia’s technology shares last week jolted investors and highlighted concerns that the world-beating rally in artificial intelligence and semiconductor stocks might be nearing a short-term peak. The region experienced its sharpest decline since April, driven by a tech-led selloff on Wall Street.
This drop has shifted focus onto underlying issues such as the rally’s narrow breadth, heavy reliance on retail traders, and growing uncertainty about the timing of Federal Reserve interest-rate cuts.
Charu Chanana, chief investment strategist at Saxo Markets in Singapore, said last week’s selloff “is a reminder that Asia’s market structure is just more vulnerable.” She added that further corrections are likely, triggered by extended valuations that have not yet been corrected, suggesting the Asia chip market will remain volatile.
Asia’s technology sector has outperformed its US counterpart this year, boosted by relatively cheaper valuations and excitement around China’s advances in artificial intelligence, particularly those of DeepSeek. The MSCI Asia Pacific Index has risen 24% in 2025 — putting it on course to outperform the S&P 500 by the widest margin in sixteen years.
Yet the scale of the surge has sparked concern about overheating. South Korea’s stock exchange has warned of risks linked to the more than 200% jump in SK Hynix Inc. shares this year. Those sky-high gains set the stage for last week’s sharp reversal.
The MSCI Asia technology gauge slid as much as 4.2% on Wednesday, its biggest intraday fall since April’s US tariff shock. South Korea’s Kospi tumbled up to 6.2%, while Japan’s Nikkei 225 dropped as much as 4.7%. Major Nvidia Corp. suppliers — including SK Hynix and Advantest Corp. — were among the hardest hit, each losing around 10%.
Concentration Risks
Analysts point to concentration risks as a structural issue in Asia’s tech losses. Taiwan Semiconductor Manufacturing Co. now represents over 40% of the Taiex, three times its share a decade ago.
In South Korea, Samsung Electronics Co. and SK Hynix together account for about 30% of the Kospi. Japan follows a similar pattern, with the top five stocks in the Nikkei 225 making up about 38% of the index.
Takehiko Masuzawa, head of equity trading at Phillip Securities Japan, warned, “If anything goes wrong with the AI or semiconductor boom, the Nikkei will plunge immediately.” He expects continued corrections and heightened volatility.
The heavy involvement of retail investors has amplified market swings. Peter Kim, managing director at KB Securities Co. in Seoul, explained that with foreign investors still cautious, higher retail and domestic participation is causing greater volatility and sector rotation across Asian markets. This is most apparent in AI-related stocks, which exhibit high beta and lower liquidity.
Stronger Dollar Adds Pressure
Meanwhile, the strengthening US dollar has increased pressure on Asian chipmakers by attracting funds back to American assets. Traders have also scaled back expectations of imminent Federal Reserve rate cuts, withdrawing a key support for global equities.
Not everyone viewed last week’s pullback as alarming. Shawn Oh, an equity trader at NH Investment & Securities Co. in Seoul, described it as “taking profit, nothing more, nothing less,” attributing the move more to psychology than fundamentals. Many investors likely anticipated a correction sooner or later.
Even after the drop, valuations in Asia’s chip sector remain attractive. Bloomberg’s regional semiconductor gauge trades at around 18 times forward earnings, well below the Philadelphia Semiconductor Index’s 28 times.
Still, some investors are growing cautious. Following warnings from Goldman Sachs and Morgan Stanley about a potential global stock pullback, Vikas Pershad, an Asian equities portfolio manager at M&G Investments in Singapore, said, “We’ve been sellers over the past few weeks.”
He emphasised a focus on prospective returns, which led to recent profit-taking. At current levels, Pershad is not yet looking to increase exposure to these sectors.
Bloomberg
