It has taken just one day to erase all gains for the year for many major stock markets in Asia. Monday’s record-breaking decline in several benchmark indices was not just prompted by recession fears from weak US data and a stronger yen. Surging foreign ownership of Asia’s chipmakers — the result of a year-long global artificial intelligence boom — lies behind the remarkable volatility in these markets.
Japan’s benchmark Nikkei 225 stock index plunged 12.4 per cent on Monday after falling 5.8 per cent on Friday, making this its worst two-day decline in history, with futures trading briefly halted by circuit breakers. In South Korea, where trading was also halted for the Kospi and Kosdaq cash and futures markets, the benchmark Kospi index fell by a record, down 8.8 per cent. Taiwan’s Taiex index dropped a record 8.4 per cent.
Weak employment figures in the US on Friday, and the ensuing recession fears, were partly to blame. In Japan, share prices have also been under pressure since the central bank raised its benchmark interest rate on Wednesday. The yen has strengthened by more than a tenth against the US dollar in the past month: that has prompted the unwinding of the yen carry trade, where investors borrow in yen to invest in higher yielding assets, also contributing to the sell-off.