Asian stocks slip after AI valuation fears spark Wall Street chip selloff

ASIAN stocks edged lower on Friday (Jul 17) after a selloff in chipmakers dragged down Wall Street as investors questioned whether massive artificial intelligence investments can justify lofty valuations. Oil climbed.

The MSCI Asia Pacific Index slid 0.3 per cent, with declines in Japan and Australia. South Korea is closed for a public holiday.

Among the main moves in markets, the S&P 500 futures fell 0.3 per cent as at 9.07 am Tokyo time. The Hang Seng futures fell 0.3 per cent, Japan’s Topix fell 1.3 per cent and Australia’s S&P/ASX 200 fell 0.3 per cent.

Contracts on the Nasdaq 100 dropped 0.5 per cent after the underlying gauge lost 1.6 per cent on Thursday. Also weighing on sentiment was Netflix, whose shares fell over 8 per cent in extended trading after forecasting a second straight quarter of slowing sales growth.

In a renewed bout of volatility Thursday, a US gauge of chip giants slumped more than 4 per cent as investors questioned whether tech stocks have grown too richly-valued amid massive capex plans.

Taiwan Semiconductor Manufacturing’s American depositary receipts dropped 2 per cent as a solid outlook was overshadowed by a higher spending forecast.

Elsewhere, Brent recouped some of the previous session’s losses as hostilities across the Middle East continued to escalate and shipping traffic slumped in the Strait of Hormuz.

The commodity traded just under US$85 a barrel. Government bonds edged lower in Australia and New Zealand, while Treasuries were steady.

“The action in the chip stocks going forward is still the most important issue for the stock market,” said Matt Maley, chief market strategist at Miller Tabak.

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“They are definitely showing some meaningful cracks, so they’re going to have to see a strong and sustainable rebound soon or it will raise some real warning flags.”

Heightened geopolitical tension helped keep a lid on risk appetite and pushed oil prices higher this week, fuelling concerns about inflationary pressures that could prompt the Federal Reserve to raise interest rates before 2026 is over.

Treasury yields edged higher Thursday and the dollar notched modest gains. 

Fed Bank of Kansas City president Jeff Schmid said inflation is his biggest worry given the risk of a further acceleration in the months ahead.

His Dallas counterpart Lorie Logan called for higher rates, saying inflation does not appear to be heading sustainably back to the target.

Traders also parsed key economic reports. Jobless claims fell last week while retail sales rose modestly in June, dragged down by a drop in gas station receipts that masked strong gains at some merchants.

“Despite challenges, consumers are still spending and the labour market shows no signs of cracking,” said Ellen Zentner at Morgan Stanley Wealth Management.

“This type of data won’t move the Fed’s needle either way, but it underscores the ongoing resilience of the US economy.” BLOOMBERG