The Philadelphia Semiconductor Index rose 2.5% on October 19, ending an eight-day losing streak that was its worst since 2008, as the Nasdaq gained 1.1%. But Asian shares slid again on October 20, with South Korea's Kospi down 3.6% and the Nikkei off 1.3%, as investors awaited results from SpaceX, Meta and Tesla.
<p>Global markets swung between relief and renewed anxiety over two days of trading as investors tried to judge whether the sell-off in artificial intelligence stocks had run its course.</p><p>On Monday, October 19, Wall Street staged a rebound led by technology shares. The Philadelphia Semiconductor Index (SOX) rose 2.5%, ending an eight-day losing streak that was its worst since October 2008. The index had slumped 11.5% the previous week. The Nasdaq Composite gained 1.1%, the S&P 500 rose 0.4% and the Dow Jones Industrial Average was flat, according to Reuters.</p><p>But the mood soured again in Asia on Tuesday, October 20. South Korea's Kospi fell 3.61%, Japan's Nikkei 225 lost 1.28% and MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.93%. European stock futures pointed lower, while US S&P 500 e-mini futures were flat.</p><h2>Short-covering, not conviction</h2><p>The Monday rebound reflected investors buying back beaten-down technology stocks ahead of a crucial week of earnings, rather than a wholesale return of confidence. The S&P 500 technology sector rose 1.2%. Western Digital gained 6% and Amazon rose 5%, while JPMorgan fell 2%.</p><p>Chris Weston, head of research at Pepperstone, said the market was willing to cover short positions and unwind defensive trades, but that this was "very different from having the conviction to rebuild aggressive exposure to AI."</p><p>South Korea's Kospi had rebounded about 4% over the previous two sessions but remained roughly 20% below its level two weeks earlier, before Tuesday's renewed slide. The Korean market is dominated by memory chipmakers Samsung Electronics and SK hynix, which were hit hard by concerns about Chinese competition in memory chips and the sustainability of AI spending.</p><h2>A crucial week for AI earnings</h2><p>Investors are now focused on a series of earnings reports that will test whether the AI boom can deliver the profits needed to justify enormous investment. SpaceX was due to report results on Tuesday, Meta on Wednesday, and Tesla, Lam Research and Texas Instruments later in the week.</p><p>Expectations are high. Goldman Sachs estimates that five AI hyperscalers, including Meta, will raise their combined capital expenditure to about $1.2 trillion next year. Daniel Morris, chief market strategist for AXA IM Core Investments at BNP Paribas Asset Management, said the sector is globally forecast to see "a doubling of earnings" compared with a year earlier.</p><p>Comments from technology companies about their spending plans will be closely watched. Any sign of a slowdown in investment could hit chipmakers further, while strong demand signals could support a more durable recovery.</p><img src="/api/files/1792480454316-0001a9f68f389524e3d30819.webp" alt="263355e8-d308-4eb9-97ac-a52bb69c0438.png"><h2>Yields, dollar and the yuan</h2><p>Bond markets reacted to the easing of AI worries. US Treasury yields rose roughly 3 to 4 basis points across the curve on Monday, as investors moved out of safe-haven bonds and into riskier assets. The dollar strengthened against most major currencies except the Australian and Canadian dollars.</p><p>China's yuan hit a four-year high against the dollar on Monday. China's economy grew a faster-than-expected 4.5% in the third quarter, driven by exports that are pushing its trade surplus towards a record. On Tuesday, China's central bank left its benchmark lending rates unchanged for a 17th consecutive month.</p><p>In Europe, stocks slid about 1% on Monday, with France down 1% as political risk rose following violent cost-of-living protests and curfews. French bond yields and spreads jumped. Indonesia's market fell 3.5% as index provider MSCI weighed removing it from its emerging-markets benchmark.</p><h2>Commodities and crypto</h2><p>Brent crude rose 0.21% to $109.78 a barrel in Asian trade on Tuesday, while US West Texas Intermediate gained 0.15% to $103.82. Oil remains elevated amid tensions in the Middle East and disruptions to shipping in the Strait of Hormuz, even after US President Donald Trump waived sanctions on Russian energy exports.</p><p>Spot gold fell 0.51% to $4,118.71 an ounce in early Asian trade, while Bitcoin slipped 0.67% to $81,386.40 and Ether fell 0.54% to $2,385.75. The yen traded around 158.57 per dollar.</p><h2>Political risks build</h2><p>Beyond AI, investors are weighing a growing list of political risks. Brazil holds a presidential runoff on Sunday, the US midterm elections are about two weeks away, and France is grappling with its worst unrest in years. The Federal Reserve's policy meeting on October 27 and 28 is another key event, with traders pricing a high probability that the Fed will hold rates but increasing odds of a hike in December.</p><h2>What it means for India</h2><p>Indian markets were closed on Tuesday for Dussehra, after the Sensex fell 876 points on Monday as private banks dragged after their results. The volatility in global technology stocks matters for Indian IT services companies, whose fortunes are tied to corporate technology spending in the United States and Europe. Foreign portfolio investors, who have withdrawn record sums from Indian equities this year partly because of the AI rally in North Asia, will also be watching whether the sell-off in Korean and Taiwanese chip stocks prompts any reallocation.</p><h2>The AI investment cycle</h2><p>Investors have been grappling with a fundamental question about the AI boom: when will the enormous investment in infrastructure translate into corresponding revenue and profits? Technology companies have committed hundreds of billions of dollars to data centres, chips and power, much of it financed through bond issuance and loans.</p><p>So far, AI revenue has grown rapidly at companies such as OpenAI and Anthropic and at cloud providers, but it remains small relative to the scale of investment. Optimists argue that AI will eventually transform productivity across the economy, justifying today's spending. Sceptics warn that the industry may be building capacity faster than demand can grow, raising the risk of a painful correction. Each earnings season brings new evidence for both sides of that debate.</p><h2>What to watch</h2><p>The coming days will determine whether Monday's rebound was a turning point or a temporary reprieve. Strong results and confident spending guidance from Meta, Tesla and chipmakers could restore faith in the AI trade. Disappointments could reignite the sell-off.</p><p>For now, markets remain caught between hopes that AI will deliver a doubling of earnings and fears that the vast sums being spent on infrastructure will not pay off. Until the earnings evidence arrives, volatility is likely to persist.</p><p>Currency markets will also be watched closely. The yen has remained weak near 158 per dollar, and any surprise from the Bank of Japan's policy meeting on October 30 could ripple through global markets, as investors who borrow cheaply in yen to buy higher-yielding assets adjust their positions. In such an environment, even modest shocks can trigger outsized moves across asset classes.</p>
“We are witnessing the birth of ‘Statist Silicon’—where the location of a transistor’s manufacture is as important as its clock speed.”
The Rise of Regional Fabric
