Financial markets across Asia experienced a significant downturn on Tuesday, mirroring sharp losses on Wall Street. The sell-off was driven by growing investor anxiety over what many see as overinflated valuations in the technology sector, particularly companies linked to the artificial intelligence boom.
Tech Rally Under Scrutiny
Investors are increasingly questioning whether the record-breaking rally in AI-related stocks this year has run too far, too fast. The central concern is that the massive investments flowing into the industry may not deliver the expected high returns as quickly as hoped. This building apprehension has made traders extremely sensitive to any negative news.
A key event shaking confidence was the revelation that tech billionaire Peter Thiel's hedge fund sold its entire stake in Nvidia, a holding valued by Bloomberg at approximately $100 million. This move has amplified existing worries about the sustainability of the AI-driven market surge.
All Eyes on Nvidia and US Economic Data
This week places two critical releases squarely in the spotlight, which could determine the market's short-term direction. On Wednesday, Nvidia, the undisputed titan of AI chip manufacturing, will announce its latest earnings. Analysts and investors will dissect this report for crucial insights into the health and future outlook of the AI sector.
Neil Wilson of Saxo Markets cautioned in a note, "Analysts are sounding upbeat ahead of the report. But the bar is set very high and we know that if investors are starting to wobble the whole house of cards can come crashing down at any point." He added that any sign of weakness in Nvidia's third-quarter results would likely be punished hard by the markets.
Adding to the pressure is the delayed release of the US September jobs report, now expected on Thursday. This data will provide a fresh snapshot of the world's largest economy and heavily influence the Federal Reserve's next move on interest rates.
Federal Reserve's Dilemma
The mood in the markets is also being weighed down by uncertainty surrounding US monetary policy. There is building concern that the Federal Reserve may hold off on a third consecutive interest rate cut at its policy meeting next month. Officials are grappling with persistent inflation pressures alongside signs of a weakening labour market.
Currently, the probability of a December rate cut is seen as roughly 50-50. Fed Chair Jerome Powell stated last month that another cut in December was not a "foregone conclusion," a sentiment echoed by other Fed members. However, Fed Governor Christopher Waller offered a different perspective on Monday, indicating his focus remains on the jobs market and that he believes another cut is warranted.
Meanwhile, Fed Vice Chair Philip Jefferson urged caution, suggesting he is waiting for more data before committing to a policy shift.
Market Performance and Key Figures
The risk-averse sentiment was felt globally. Following a deep sell-off on Wall Street that saw the Dow Jones drop 1.2%, Asian markets followed suit.
Major indices across the region registered substantial losses:
- Tokyo's Nikkei 225 fell 1.8%
- Hong Kong's Hang Seng Index dropped 0.9%
- Shanghai Composite was down 0.4%
- Significant losses were also recorded in Sydney, Seoul, Taipei, Singapore, and Wellington.
In the cryptocurrency space, Bitcoin continued to struggle, trading around $91,300 and erasing all its gains for the year. The premier digital asset has lost more than a quarter of its value since hitting a record high last month.
