Asian equity markets, particularly in South Korea, Japan, and Taiwan, experienced a sharp sell-off on Monday, led by tech stocks, amid growing expectations of a U.S. interest rate hike and escalating tensions in the Middle East [1][3]. The Kospi Index in South Korea plunged as much as 8% at the open, with major tech constituents Samsung Electronics and SK Hynix falling 5% and 2%, respectively; together, these two companies account for over 40% of the index [2][3]. Japanese tech investor SoftBank Group dropped 7.5%, while Tokyo Electron and Advantest fell 6.7% and 5%, respectively. Taiwan Semiconductor Manufacturing Co. (TSMC) and Hon Hai Precision (Foxconn) also declined by 2.1% and 5.1% [3].
The sell-off was exacerbated by a global rout in tech shares following the U.S. Nasdaq's 4.5% decline last week and disappointing revenue from Broadcom, which triggered a cascading impact across the sector. The VanEck Semiconductor ETF (SMH) lost over 9% on Friday, while Arm Holdings and Micron Technology dropped nearly 13% each. UOB estimated that the tech-led rout erased approximately $1.8 trillion in S&P 500 market capitalization [3].
Currency markets also saw heightened volatility, with the yen and South Korean won coming under pressure. In response, South Korean authorities held an emergency weekend meeting to discuss potential interventions to stabilize both the currency and stock markets [1]. Market participants remained cautious, closely monitoring signals from the U.S. Federal Reserve and developments in the Middle East [1].
Despite the sharp declines, foreign investors have been net sellers of South Korean stocks throughout the year, unloading a net 1.24 trillion won (about $801 million) worth of Kospi-listed shares as of Monday morning, and an estimated $62 billion in net outflows as of late May [2]. Analysts from Goldman Sachs and Nomura attributed much of this selling to structural and mechanical factors, such as increased index weightings and regulatory limits, rather than deteriorating fundamentals [2]. Domestic investors have more than offset foreign outflows, with an estimated $70 billion in retail inflows this year [2]. Goldman Sachs remains bullish, raising its 12-month Kospi target to 12,000 and forecasting a further 37% upside [2].
Looking ahead, UOB noted that tech and software companies will remain in focus, particularly with the upcoming debut of a space exploration/AI/tech company on the Nasdaq on June 12, which may be the largest IPO ever [3]. Analysts warned that continued pressure on Asian equities and currencies could persist if U.S. rate hike expectations remain elevated and geopolitical risks intensify [1].
CONCLUSION
Asian tech stocks suffered a significant rout, led by South Korea's Kospi, as fears of a U.S. rate hike and Middle East tensions rattled markets. Despite heavy foreign outflows, robust domestic buying and positive analyst outlooks suggest underlying confidence in Korean equities. However, ongoing volatility is likely if macroeconomic and geopolitical uncertainties persist.