Trading on the South Korean Kospi was briefly suspended on Monday after the index plunged almost 9%, as global stock markets fell amid concern over tech stocks and rising oil prices due to Middle East tensions.
Market declines across Asia and Europe
Stock markets in Asia and Europe fell on Monday following a sharp sell-off in US tech stocks late last week. Investors are fretting over how companies at the forefront of the artificial intelligence boom will fund their “eye-watering” spending plans. Meanwhile, Brent crude oil rose by nearly 5% to $97.60 a barrel after Iran and Israel exchanged fire over an Israeli strike on Beirut.
In Asia, heavily dependent on oil imports, stock markets dropped sharply. The South Korean Kospi index slumped nearly 9% at one point, forcing a brief trading halt. Chipmakers Samsung Electronics and SK Hynix led the decline, with shares dropping 9% and 6% respectively. Japan’s Nikkei 225 fell 3%, and Hong Kong’s Hang Seng dropped 1.5%.
European and US markets feel the heat
In London, the FTSE 100 opened down 0.4%, with Rolls-Royce and British Airways’ parent IAG among the biggest fallers. Oil companies BP and Shell saw gains. Stock markets in Germany, France, and Spain also fell. US markets are expected to open lower later on Monday.
Shares in European AI-focused companies fell sharply. Chip firms such as BE Semiconductor Industries (Besi) dropped 4.5%, and ASML fell 3.2%, leading declines on the pan-European Stoxx 600 index, which was down nearly 0.9%. German tech firm Aixtron dropped almost 6%, and Finland’s Nokia fell 5%.
Investor nervousness over AI valuations
The declines followed a sharp sell-off in tech stocks at the end of last week, when the tech-heavy Nasdaq index lost nearly 5% of its value. The S&P 500 also dropped 2% on a weekly basis, ending nine weeks of gains. Investors are growing more nervous about AI stock valuations, especially amid rising prospects of higher inflation and interest rates this year.
Susannah Streeter, chief investment strategist at Wealth Club, said markets are now pricing in a greater likelihood of an interest rate rise from the Federal Reserve. “Fears of higher interest rates come just as tech giants, which have some of the deepest cash pockets, are seeking fresh funding to help finance eye-watering capital expenditure plans,” she said. “The demand is voracious right now, but there is concern that assets being invested in today, at a time when the technology is so expensive, could become obsolete further down the road.”
Charu Chanana, chief investment strategist at Saxo, added: “The market is becoming more selective on AI. Investors now want clearer proof of earnings delivery, monetisation, capex discipline and funding returns. This looks more like a positioning reset than a regime break. The AI story is not over, but easy AI enthusiasm may be.”
Oil prices surge on Middle East tensions
Brent crude, which had been as low as $93 a barrel last week, rose to $97.60 on Monday after the first exchange of direct strikes between Iran and Israel since a ceasefire paused the war in April. Fears are growing that clashes could escalate and prevent the reopening of the Strait of Hormuz, a significant shipping channel through which a fifth of the world’s oil and gas supply normally flows.
Donald Trump, speaking to the Financial Times before the Israeli strikes on Iran, said he would dictate to Israel’s president, Benjamin Netanyahu, how the war should be conducted. However, after the Israeli bombing in Beirut and Iran’s retaliation, Trump told Fox News that Israel’s strikes in Lebanon were not coordinated with the US and that he was “not happy about it”.
