Major stock markets in Asia, including South Korea, Japan, and Taiwan, saw significant drops of 3-4%. This marked the largest decline in a month, following the sharp losses seen on ‘Black Monday’ in early August.
The steep drop was triggered by the U.S. stock market’s plunge the day before, fueled by growing concerns over a potential recession in the U.S. economy and fears of a bubble in the artificial intelligence (AI) sector.
As a result, semiconductor and tech-heavy markets like S. Korea, Japan, and Taiwan were hit the hardest. Now, investors are left wondering whether this is a temporary shock, similar to last month’s Black Monday, or a sign of more prolonged market troubles.
According to the Korea Exchange (KRX), S. Korea’s KOSPI index closed down 3.15% at 2,580.80. Foreign investors and institutions sold off large amounts, with net sales of 986 billion won ($739.3 million) and $548.1 million, respectively, while individual investors net bought $1.2 billion.
Samsung Electronics and SK Hynix, the two largest companies by market cap, dropped 3.45% and a steep 8.02%, respectively. Samsung even dipped below the 70,000 won ($52.49) mark during the day, a key price point for investors. The KOSDAQ index also fell 3.76%, closing at 731.75.
Japan’s leading index, the Nikkei, fell 4.24% to 37,047.61, marking its largest single-day drop since Aug. 5. Taiwan’s TAIEX also saw a sharp decline of 4.52%. The downturn in Asia followed Wall Street’s slump on Aug. 3, where the Dow Jones dropped 1.51%, the S&P 500 fell 2.11%, and the tech-heavy Nasdaq slid by 3.26%.
The main cause of the Asian market decline mirrors what was observed a month ago: renewed fears of a U.S. economic recession.
On Aug. 3, the U.S. Institute for Supply Management (ISM) reported that the August Manufacturing Purchasing Managers’ Index (PMI) came in at 47.2, lower than the expected 47.5, reigniting concerns about a slowdown. A PMI below 50 signals a contraction in business activity.
Adding to the market’s anxiety, the Atlanta Federal Reserve’s GDP Now model projected a third-quarter growth rate of 2.0% on an annualized basis, down from an earlier estimate of 2.8% in late July.
Further weighing on markets was the growing concern over a bubble in the AI sector. NVIDIA, a key player in AI semiconductors, saw its stock plunge 9.53% on the 3rd, wiping out $279 billion in market capitalization—the largest single-day loss for a U.S. company in history. This was driven by disappointment over its recent earnings report, which failed to meet high market expectations. Other major U.S. tech stocks, including Apple and Tesla, also fell 1-2% as part of a broader sell-off of what’s being called the ‘Magnificent 7′ stocks.
September is historically a weak month for the stock market, further complicating the outlook. Data from Yardeni Research, covering stock performance from 1928 to 2023, shows that September tends to be the worst-performing month, with an average decline of 1.17% in the S&P 500.
Although the U.S. Federal Reserve is expected to cut interest rates soon, which would normally be good news for stocks, many experts warn that the market correction in the U.S. could persist for a while. Given that S. Korea, Japan, and Taiwan’s markets often move in tandem with the U.S., some analysts predict continued volatility in these regions as well.
Mike Wilson, a strategist at Morgan Stanley, explained that the market has already factored in expectations of a Federal Reserve interest rate cut. He added that unless the rate cuts are bigger than anticipated or the U.S. economy shows notable improvement, it’s unlikely that the markets will see a strong recovery.
