Global Markets-World stocks hit one-month low as chip rout worsens

The MSCI All Country World Price index fell 0.6% to its lowest since June 29. After a stellar rally this year, AI-linked stocks have been met with several bouts of selloff in recent weeks as investors worry about stretched valuations and circular funding in the sector. The latest rout came after report that China had begun manufacturing domestically developed immersion deep ultraviolet (DUV) lithography machines, while Chinese chipmaker CXMT's strong stock-market debut on Monday fuelled concerns about increased competition in the memory chip industry. "You've seen the companies paying for AI, the hyperscalers, not really participating because of concerns about the cost and the degree of leverage that needs to be taken on. And now we're seeing questions over the profitability of the semiconductor space, particularly in Asia," said Dorian Carrell, head of multi-asset income at Schroders. "The broader AI story has some way to go, but these kinds of (profit) growth rates are rarely sustained. We think that it's healthy that the market's questioning these things." While some positive earnings reports from companies including Unilever and Mercedes-Benz helped European stocks outperform, Wall Street looked set to come under pressure again. Brent crude futures extended Monday's nearly 9% plunge, falling more than 2% to $86.63 a barrel, as a lull in hostilities between the U.S. and Iran followed Washington's abrupt suspension of air strikes on Saturday. President Donald Trump said on Monday the United States was having "good talks" with Iran and there was a chance of a deal. The break in fighting pushed down benchmark 10-year U.S. Treasury yields by about 4 basis points to 4.64% on Monday, but hardly budged shorter-term rates. Markets have priced about a 36% chance that the Federal Reserve hikes by 25 basis points on Wednesday. "If I was sitting with positions in stocks that had been doing really well, I would be quite nervous because if people start to degross their exposure, then the high-momentum stocks tend to be very much the place where the de-grossing happens first," Martin Frandsen, portfolio manager at Principal Asset Management said, referring to the risks of a selloff that high-growth stocks face from higher interest rates. "If money becomes more expensive, then people start to offload their more levered positions as well." Expectations for hikes sooner or later kept the dollar supported, keeping the euro below $1.14 at $1.1362. The yen traded at 163.925 to the dollar, barely above a four-decade low, with markets on edge about Japan intervening in the currency pair - particularly if the Bank of Japan leaves rates on hold this week and sets off another yen slide. "If BOJ communication is not hawkish enough and USD/JPY heads higher, traders should anticipate an official response, including verbal intervention, rate checks, or even direct FX market intervention, perhaps on Friday," said Thierry Wizman, currency and rates strategist at Macquarie Group. World stocks fell to a one-month low on Tuesday, as investors dumped chipmakers across the globe on concerns about Chinese competition and funding of the AI boom, while the possibility of a U.S. interest rate hike as early as this week further dampened the mood. Asian chipmakers were at the heart of Tuesday's selloff, with South Korea's KOSPI diving more than 10% to a three-month low, triggering a circuit breaker on the way down as it heads for its largest monthly fall on record, surpassing declines suffered during the Asian financial crisis in 1997. The index had more than tripled in value over the 12 months to June, but it has shed more than a third of its value since that peak. Shares in memory chipmakers SK Hynix and Samsung Electronics, which are under extra pressure in a market transformed by leverage, shed more than 12% as their stratospheric rally unwinds in a hurry. Futures tracking the tech-heavy Nasdaq 100 dropped more than 1%, as Nvidia and Micron Technology's shares fell in premarket trading. Nvidia shares had already shed 5% on Monday after the Wall Street Journal reported the company was in talks to provide roughly $250 billion in financing guarantees for OpenAI as part of a massive data centre project. Earnings this week from "Magnificent Seven" members Microsoft, Amazon.com, Meta and Apple, also among companies that splurge most on AI, will be seen as a key test of the market rally, particularly after Alphabet and Tesla spooked investors last week with negative cash flow reports.

Global Markets-World stocks hit one-month low as chip rout worsens

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