(Updates to European morning)
* SK Hynix ( SKHY ) earnings fail to soothe anxiety as selloff
extends
* Eyes on slate of big tech earnings in test of AI trade
* Dollar stands tall ahead of delicately poised Fed decision
* Oil prices jump on fresh attacks in Middle East
By Ankur Banerjee
SINGAPORE, July 29 (Reuters) - Asian stocks sank on
Wednesday, extending a vicious selloff as anxiety about AI
valuations and whether the massive spending will deliver returns
rattled investors ahead of crucial earnings from big tech firms
and a U.S. Federal Reserve policy decision.
Oil prices jumped after fresh attacks in the Middle East
shattered the relative calm of recent days in the U.S.-Iran war
as investors fret about the impact of depleting supplies on
prices and global rates.
Asian chipmakers have been at the epicentre of this year's
AI-driven rally and, more recently, investor concerns about its
staying power, sparking sharp market swings.
South Korea's KOSPI, which had more than tripled over 12
months to June, sank over 11% to its lowest level since early
April, after dropping more than 10% on Tuesday. Taiwan stocks
fell 5% while Japan's Nikkei slid 2.6% as the
rout deepened across the region.
That left MSCI's broadest index of Asia-Pacific shares
outside Japan down over 2.45% after shedding
3.6% on Tuesday.
Shares of SK Hynix ( SKHY ) fell 9% as investors digested
earnings that showed the chipmaker increased quarterly operating
profit more than sixfold but missed lofty expectations.
"SK Hynix ( SKHY ) delivered strong results, but in today's AI
market, strong is no longer enough," said Gary Tan, portfolio
manager at Allspring Global Investments.
"Investors were looking for additional catalysts,
particularly around long-term agreements and shareholder
returns, to support a memory sector that has become the
epicentre of the AI trade," Tan added.
Earnings from the "Magnificent Seven" members Microsoft ( MSFT )
and Meta later in the day will be a key test
of the AI trade, particularly after Alphabet and Tesla
spooked investors last week with negative cash flow
reports.
"This round of earnings would need to prove that the huge
capital expenditure has paid off else we may see the market drag
further," said Sean Teo, sales trader at Saxo in Singapore.
Teo also said investors are now getting wary of circular
financing where a handful of companies are investing into each
other in somewhat of a closed loop where organic demand becomes
unclear.
Nasdaq futures fell 0.7% in Asian hours while European
futures slid 0.6% as the selling appeared to spread to
other regions. Hong Kong's Hang Seng index bucked the
trend and was up 1.4%.
OIL JUMPS AHEAD OF FED MEETING
Brent futures jumped over 3% to $87.19 per barrel
while U.S. West Texas Intermediate (WTI) crude rose more
than 3% to $82.08 after U.S. Central Command said Iran had
launched multiple ballistic missiles that were successfully
intercepted.
"The latest attack highlights that the two sides remain a
long way from resolving the core dispute of passage through the
Strait of Hormuz that caused the earlier MOU to collapse," said
Tony Sycamore, market analyst at IG.
Iran effectively shut the key waterway to ships other than its
own after the U.S. and Israel launched strikes on February 28. A
deal last month between Washington and Tehran partially reopened
it, but the agreement collapsed in early July after Iran fired
on ships using a channel it had not approved.
That has again put inflation pressures in the spotlight
ahead of the Federal Reserve's policy decision due later on
Wednesday. The U.S. central bank is seen as more likely to leave
interest rates steady even as a growing number of its
policymakers fret openly about inflation.
The decision remains unusually hard to call under the
no-guidance regime adopted by the new Fed Chair Kevin Warsh,
with traders pricing in a 33% chance of a hike. The U.S. dollar
was perched near a one-month high ahead of the decision.
"We think the market may once again be underestimating the
extent of the hawkish shift at the Fed, and that the (for now)
moderate increase in energy prices may tip an already finely
balanced meeting in favour of a hike this week," said Frank
Flight, head of macro strategy at Citadel Securities.
"We acknowledge that it is a close call, but we now see a
rate hike at the July meeting," Flight said.