Asian Stocks Slide as Chip Selloff Deepens on Fears of Tighter US Curbs on China Sales

Asian markets opened Thursday with chip stocks under heavy pressure, the second day of a technology selloff that had already hit Wall Street hard. Japan and South Korea took the worst of it. Japan's Topix index fell as much as 1.5%, with a stronger yen adding to the weight, though it was down 0.9% by late morning in Tokyo.

Tokyo Electron bore the brunt for a second straight day, dropping almost 11%. Taiwan Semiconductor Manufacturing Co. shed 3.4%. In Hong Kong and mainland China, shares swung back and forth; the Hang Seng Tech Index lost as much as 1.9% at one point. By midmorning the Hang Seng was down 0.4%, the Shanghai Composite down 0.6% and Australia's S&P/ASX 200 down 0.3%.

The trigger was a Bloomberg report that the Biden administration has told allies it is considering severe restrictions if companies such as Tokyo Electron and the Dutch firm ASML keep giving China access to advanced semiconductor technology. The prospect of tighter US curbs on chip sales to China unsettled investors across the sector.

The damage in the US had been considerable. The S&P 500 fell 1.4% and the Nasdaq dropped 2.9%, its worst day since 2022. A closely watched semiconductor gauge sank almost 7%, its biggest slide since 2020, pulled down by Nvidia, Advanced Micro Devices and Broadcom. In Europe, ASML tumbled 11%, even though it had just reported strong orders. US futures edged higher Thursday, with S&P 500 futures up 0.2% and Nasdaq 100 futures up 0.3%.

Citigroup analysts, including Atif Malik, wrote that global semiconductor stocks are expected to remain volatile through the US elections. They suggested Washington may be considering the move because China sales by foreign equipment makers outgrew those of US peers last year, all else being equal.

The selloff also follows a first half in which a handful of megacap companies lifted the market, stretching their valuations and leaving a tougher setup for the rest of 2024. John Woods, chief investment officer for Asia at Lombard Odier, said he would not immediately abandon the tech trade but has concerns over valuation, and sees opportunities outside technology.

Elsewhere, the macro backdrop was calmer. Treasuries were steady in early Asian trading, with the 10-year yield up two basis points at 4.17%. The Fed's Beige Book showed slight economic growth and cooling inflation, and Governor Christopher Waller said the Fed is getting closer to cutting rates but is not there yet. The dollar index hovered near its lowest in two months. The yen, which rose 1.4% against the dollar on Wednesday, lost some ground and sat at 156.25 per dollar. A former Bank of Japan executive director said the central bank is unlikely to raise rates this month and will instead trim its bond buying slightly more than expected, to avoid feeding yen weakness.

Regional data was mixed to strong. Australia added more than twice the number of jobs economists expected last month, and Japan's exports grew for a seventh straight month in June. West Texas Intermediate crude rose 0.4% to $83.20 a barrel, after a 2.6% gain Wednesday on Canadian wildfires threatening 400,000 barrels a day of output. Gold was at $2,464.19 an ounce and Bitcoin at $64,704.69.

The week still holds a European Central Bank rate decision and US jobless claims on Thursday, along with remarks from several Fed officials. In China, President Xi Jinping is set to lay out his long-term economic vision as a twice-a-decade conclave on reform ends.