Asian Stocks Plunge as US-China Chip Conflict Intensifies

Chip stocks in Asia tumbled on Thursday, tracking a heavy selloff on Wall Street spurred by a news report that the United States was mulling tighter curbs on exports of advanced semiconductor technology to China.

Among the worst hit were shares of Taiwan Semiconductor Manufacturing Co (TSMC) (2330.TW), opens new tab, the world's largest contract chipmaker, which has shed roughly T$2 trillion ($61.35 billion) in market value over two days.

TSMC, which reports earnings later on Thursday, has taken a double hit this week from reports of the US curbs as well as remarks from US Republican presidential nominee Donald Trump that Taiwan should pay America for its defence.

TSMC fell more than 3%, joining other technology behemoths such as South Korea's major chipmakers Samsung Electronics (005930.KS), opens new tab and SK Hynix (000660.KS), opens new tab, which were down 1.85% and 4.1%, respectively, and Japan's Tokyo Electron (8035.T), opens new tab, which slumped more than 8%.

The Global X Asia Semiconductor ETF (3119.HK), opens new tab was down 2.7%, reducing gains for the year to 13.5%.

The Bloomberg News report published during Asian trading hours on Wednesday said President Joe Biden's administration was weighing a measure called the foreign direct product rule that allows the US government to stop a product from being sold if it was made using American technology.

That would potentially mean restrictions on companies such as Tokyo Electron and Netherlands' ASML (ASML.AS), opens new tab.

TSMC's American Depository Receipts slid 8% on Wednesday. In its first-quarter earnings report, TSMC said 69% of revenue was from customers based in North America and 9% came from China.

Washington's protectiveness towards the US semiconductor manufacturing industry, which it views as strategically important for competing against China, has raised increasing concerns for investors.

"It seems macro and geopolitical factors played a bigger role than fundamentals," said Kang Jin-hyeok, an analyst at Shinhan Securities in Seoul.

Kang was referring to the strong recent earnings releases from Samsung and ASML, but noted the latter's heavy sales to China make it a target of the proposed US curbs.

China accounted for about 49% of ASML's lithography system sales in the second quarter and represents about 20% of its order backlog.

ASML shares fell more than 10% on Wednesday, despite forecast-beating second-quarter earnings that showed a rise in artificial intelligence-linked bookings.

The Biden administration has moved aggressively to curb Chinese access to cutting-edge chip technology, including sweeping restrictions issued in October to limit exports of AI processors designed by firms including AI darling Nvidia (NVDA.O), opens new tab.

The latest wrinkles in Sino-US relations have sped up what appeared to be initial signs of investors' rotation from Big Tech stocks into smaller value ones, on the view that lower US rates will benefit smaller companies.

"Positioning had become very extreme in the semi-conductor/AI space and the import curb comments catalysed a de-risking event," said Jon Withaar, who manages an Asia special situations hedge fund at Pictet Asset Management.

Tech stocks have outperformed this year on the back of the global AI boom, with the Nasdaq (.IXIC), opens new tab up 20%, while the S&P 500 (.SPX), opens new tab has surged 17%.

But the selloff in Asia on Thursday left major bourses in the red, with Tokyo's Nikkei (.N225), opens new tab down 2%, while Taiwan stocks (.TWII), opens new tab slid 2.3%.

South Korea's benchmark KOSPI index (.KS11), opens new tab fell 1.34%. Hong Kong's Hang Seng tech index (.HSTECH), opens new tab lost 1.5%.