Kospi tumbles more than 6% as chip and oil fears hit Asian stocks

Oil is back as the dominant macro force. With Brent crude holding near a two-week high due to attacks on Saudi energy sites and a shaky Russia-Ukraine energy truce, the resulting inflationary pressure is driving yields higher and cutting into the high valuations of Asian tech markets. The Kospi is heavily exposed to chipmakers, making it the region's most vulnerable index, and its deep fall points to AI rally fatigue and a reversal of concentrated positions. A strong dollar applies pressure on Asian currencies and foreign capital flows. The next tests are US bank earnings and this week's CPI data (preview, another preview). Any sign that energy costs drive broader inflation will reinforce the hawkish rate view weighing on growth stocks.

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Asian AI stocks were the hardest hit on a jittery day, as rising oil prices pushed home the lesson that geopolitics inflicts the most damage when it drives inflation and interest rates.

In summary:

• South Korea's Kospi shed more than 6%, dipping under 6,000 for the first time since July 31. Chipmakers led the regional slump.
• Japan's Nikkei lost 2.6%. Chinese markets followed: the tech-laden ChiNext fell 3%, the CSI 300 dropped 1.3%, and the Shanghai Composite edged down 1.2%.
• The drop came after a weak session for US semiconductor stocks, which knocked the Nasdaq down 0.5%. Doubts about the AI rally's durability and growing US-China competition stoked the selling.
• Brent crude neared a two-week high as the market considered attacks on Saudi energy infrastructure and the likelihood of increased Russian diesel supply.
• The dollar stood firm on safe-haven demand. The upcoming US earnings season is expected to set the tone for the remainder of the year.

Asian stock markets dropped heavily on Tuesday, pulled down by technology shares. A semiconductor selloff on Wall Street, joined by fresh oil-driven inflation worries, pounded the region's richest valuations, Reuters reported.

South Korea's Kospi shouldered the worst of the drop, sliding over 6% to fall below 6,000 for the first time since July 31. The heavy index weighting toward chipmakers leaves it exposed to AI trade sentiment shifts. Japan's Nikkei declined 2.6%. Chinese markets also pulled back: the ChiNext slid 3%, the CSI 300 fell 1.3%, and the Shanghai Composite dropped 1.2%.

The Asian weakness followed overnight losses on Wall Street, where the tech-heavy Nasdaq lost 0.5% as chip stocks faced pressure. Investors are growing more nervous about the AI rally's longevity, with rising US-China rivalry adding to the haze. Recent days have seen warnings about speculative investor behaviour and reports of a deepening scramble for computing power and funding.

Energy markets are back at the centre of global trading. Brent crude neared a two-week high as investors weighed the impact of attacks on Saudi Arabian oil facilities and the potential for more Russian diesel. One strategist said the market is learning again that geopolitics does its worst damage when it fuels inflation. The oil rally is keeping bond yields under pressure and dimming the appeal of expensive growth stocks, according to the strategist, who added that the fragile Russia-Ukraine energy truce and active Middle East supply risks were compounding the pressure.

The dollar remained steady on safe-haven buying, creating extra headwinds for Asian assets.

Focus shifts to the US earnings season, which is expected to set the market tone for the rest of the year. Major US bank results will offer early clues on how rising yields influence lending, dealmaking, and funding costs. This week's US inflation numbers will show whether higher energy costs spread into broader price pressures. Investors are expected to remain cautious on the high-growth sectors that drove markets higher until oil markets settle.