Most Asian equity markets turned lower on Tuesday as investors pulled back from recent gains in artificial intelligence-focused stocks, taking profits and trimming exposure after a sustained rally. The retreat contrasted with Monday's broader advances that had been supported by optimism over U.S.-Iran talks and continued enthusiasm for AI-related firms.
Regional risk sentiment had been partially buoyed by reports that Iranian and U.S. officials showed signs of movement during talks in Switzerland over the weekend, easing immediate concerns about disruptions to oil flows through the Strait of Hormuz. Still, traders remained guarded about the longevity of any agreement and whether it would materially alter supply risks.
Markets were also processing last week's hawkish message from the Federal Reserve, which has led traders to pare back expectations for the timing and scale of U.S. interest-rate cuts. That backdrop, combined with weakness in U.S. technology stocks overnight, encouraged some investors to lock in gains across Asia's best-performing AI-linked names after multiple weeks of outsized returns. S&P 500 futures were down about 0.1% as attention turned to an upcoming personal consumption expenditures inflation reading for further clues on the U.S. economic trajectory.
KOSPI leads regional losses
South Korea's KOSPI emerged as the worst-performing major regional benchmark, plunging roughly 4.6% after having recently reached record highs. The decline was concentrated in heavyweight semiconductor companies: SK Hynix Inc (KS:000660) and Samsung Electronics Co Ltd (KS:005930) each fell by about 5% during the session. The steep selloff followed a rapid, AI-driven appreciation in local chip stocks - highlighted by SK Hynix overtaking Samsung as South Korea's most valuable listed company just a day earlier - and illustrates how concentrated gains can reverse quickly when investors rotate out of the sector.
Market positioning likely amplified the move. The KOSPI had registered declines only twice in the prior seven trading sessions, leaving the index relatively exposed to a pullback as sentiment toward technology and semiconductor names cooled.
Japan: chip-linked and export names retreat
Japan's Nikkei 225 declined about 1.1%, while the broader TOPIX lost 0.8%. Both indexes gave back some of the gains they had accrued during a recent run to record levels, with chip-related and export-oriented stocks among the weaker performers. June purchasing managers index readings released for Japan indicated that both manufacturing and services activity picked up during the month, but the data also showed a sharp rise in input prices linked to disruptions tied to the Iran situation.
China, Hong Kong and Australia
Chinese markets were mixed: the Shanghai Shenzhen CSI 300 fell roughly 1%, while the Shanghai Composite was essentially flat as investors balanced hopes for additional policy support from Beijing against concerns about sluggish global growth. Hong Kong's Hang Seng index slipped about 0.5%, pressured by declines in technology and electric vehicle stocks.
Australia's S&P/ASX 200 traded nearly flat as the market looked ahead to key inflation and labor market releases scheduled later this week. Those Australian data points are expected to influence the Reserve Bank of Australia's policy outlook after the central bank announced a pause in its tightening cycle.
Market implications
Tuesday's pullback underscores the sensitivity of regional equity benchmarks to shifts in sentiment around AI and semiconductor valuations, the evolving diplomatic picture in the Middle East, and the lingering effects of a hawkish turn from the U.S. central bank. With major economic data and inflation readings on the calendar in the days ahead, investors are likely to monitor incoming information closely as they reassess positioning across technology, semiconductor and export-exposed sectors.