Asia stocks fall before Trump-Xi talks; South Korea’s Kospi slumps from record high
- Asian markets fell on Friday as investors tracked the second day of high-stakes talks between Trump and Xi.
- South Korean stocks retreated sharply and were the worst performers amid tensions around technology exports.
- Persistent geopolitical uncertainties further weigh on investors' sentiment and contribute to the weaker tone.
Most Asian stocks fell on Friday, shrugging off the overnight rally on Wall Street led by hopes for improving relations between the US and China – the world’s two biggest economies. Investors, however, remain on edge amid high-stakes talks between US President Donald Trump and Chinese President Xi Jinping in Beijing.
Meanwhile, Chinese markets steadied near multi-year highs as markets sought more details on reports of the US allowing more chip sales to China. In contrast, South Korea’s KOSPI is by far the worst performer, retreating sharply from a fresh record high after a US trade official said U.S. chip export controls were not discussed in detail during recent talks. This comes on top of amid concerns of concentration risks, particularly in artificial intelligence stocks, leading to heavy losses in major chipmaking stocks and South Korean markets.
Furthermore, a finance ministry report said that the South Korean government saw continued downside risks to the economy amid the Middle East tensions. In fact, the Ministry of Economy and Finance said in its monthly report, called Green Book, that the Asian economy recently faced lingering downward risks stemming from the Iran war despite the continued recovery trend shown in the significantly expanding first-quarter growth.
On the geopolitical front, Trump said in an interview aired on Thursday night on Fox News that he would not be much more patient with Iran and urged Tehran to reach a deal. Further, a commercial vessel was reportedly seized by Iranian personnel off the United Arab Emirates (UAE), stoking concerns over the flow of energy supplies through the critical Strait of Hormuz. This turns out to be another factor weighing on investors' sentiment and contributing to a generally weaker tone across the Asian equity markets on Friday.
The market focus remains squarely on the incoming headlines from the second day of talks between Trump and Xi. Apart from this, developments surrounding the Middle East crisis might continue to infuse some volatility in the financial markets and contribute to producing short-term trading opportunities heading into the weekend.
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
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