Asia-Pacific stock markets experienced another sharp decline, with storage stocks plummeting over 10%.

Original Title:

Original Author: Zhao Ying

Original Source: Wall Street CN

A renewed semiconductor sell-off weighed on Asian stock markets, raising fresh doubts about the sustainability of AI trades. Meanwhile, escalating tensions in the Middle East pushed oil prices higher for a fourth consecutive day.

South Korea's Kospi index extended its decline to over 7% on Wednesday, with SK Hynix and Samsung Electronics contributing the bulk of the drop. Tokyo-listed Kioxia Holdings plunged more than 13%, while Japan's Nikkei 225 widened its loss to 3%. This sell-off dragged the MSCI Asia Pacific Stock Index down 1.5%, snapping a two-day winning streak.

Meanwhile, Brent crude oil rose for a fourth straight day, breaking above $85.25 per barrel. A new round of US airstrikes on Iran intensified concerns over potential disruptions to Middle East energy supplies.

The Chairman of South Korea's Financial Services Commission stated that authorities will soon announce measures regarding leveraged ETFs, in response to controversies that leveraged ETFs tied to Samsung and SK Hynix have amplified stock market volatility. Additionally, the Bank of Korea raised its benchmark interest rate from 2.50% to 2.75%, in line with market expectations.

Semiconductor Sell-Off Intensifies, AI Trade Resilience Tested

The persistent pressure on the semiconductor sector is the core driver of the current decline in Asian stock markets.

After months of significant stock price appreciation, investors are demanding stronger evidence that the surge in AI capital expenditure can translate into sustained profit growth across the semiconductor supply chain. Bloomberg strategist David Savage noted that the market's tepid response to ASML's strong earnings report deepens a worrying trend — Samsung Electronics' robust preliminary earnings and TSMC's solid sales data have so far failed to provide support for an increasingly vulnerable chip stock rally.

ASML had earlier raised its full-year sales forecast for the second time this year. According to a report from The Information citing four sources, the company also plans to raise prices on chipmaking equipment. Nevertheless, market reaction remained muted. TSMC is set to report earnings later on Wednesday, seen as the next key checkpoint for assessing AI infrastructure build-out progress. David Savage remarked that as Asia's most valuable company, TSMC faces extremely high expectations, and it remains to be seen whether it can reverse overall regional market sentiment.

South Korean Market Triggers Circuit Breaker, Regulators Respond Urgently

The severity of the South Korean stock market decline triggered market protection mechanisms. The Kospi 200 index futures fell over 5%, prompting the Korea Exchange to activate the "sidecar" mechanism, halting program trading on the Kospi. Japan's Nikkei 225 index once expanded its loss to 3%.

The statement from the Chairman of South Korea's Financial Services Commission reflects the regulator's high alert regarding market volatility. Leveraged ETFs linked to Samsung and SK Hynix are believed to have amplified stock price fluctuations recently, prompting the authorities to promise swift countermeasures. The Bank of Korea also raised interest rates by 25 basis points on the same day, lifting the benchmark rate to 2.75%, in line with market expectations.

Middle East Tensions Escalate, Oil Prices Continue to Climb

Geopolitical risks have become another key driver pushing oil prices higher.

A temporary peace agreement between the US and Iran, signed about a month ago, has nearly completely broken down over the past week, with both sides locked in a dispute over control of the Strait of Hormuz. A significant portion of energy exports from Saudi Arabia, Qatar, and the UAE must pass through this strait. Trump stated that bombing would be intensified until Iran stops attacking ships in the Strait of Hormuz and agrees to open the waterway.

According to Xinhua News Agency, a spokesperson for Iran's Islamic Revolutionary Guard Corps posted on social media early on the 16th, saying that Iran's current operations are focused on destroying the US's "offensive infrastructure" in the region, with subsequent steps to follow. The spokesperson wrote: "The enemy should not think it can maintain the current state of combat or drag the war into a war of attrition."

David Russell of TradeStation commented: "The Fed has no immediate pressure to raise rates, but in the longer view, oil prices are the dominant factor. The energy sector held up the market in June, but if the Strait of Hormuz remains closed, that chapter could soon become history."

Inflation Data Eases Fed Rate Hike Expectations, Bond Market Strengthens

Amidst the turmoil in equity and oil markets, the bond market benefited from cooling inflation data.

The US Producer Price Index (PPI) for June came in lower than expected, pushing US Treasury prices higher on Wednesday and prompting traders to further scale back their expectations for the magnitude of Fed rate hikes this year. Spurred by this, government bonds in Australia and New Zealand also strengthened. The yield on the US two-year Treasury note retreated further from its 2026 highs.

The core contradiction facing the market currently is this: softer inflation data provides the Fed with room to hold steady. However, the upside risk to energy prices from the worsening Middle East situation could, over a longer horizon, reopen the valve on inflationary pressures, complicating the monetary policy outlook once again.