Asian stocks fell, tracking overnight weakness in U.S. semiconductor shares as valuation concerns, rising Chinese competition and persistent geopolitical conflicts made investors increasingly cautious.
"The main theme overnight was energy-driven risk and technology-led weakness," Commerzbank analysts said in a note, highlighting losses in the Philadelphia Semiconductor Index amid mixed U.S. stock performance.
While the S&P 500 was relatively stable on Monday, there was "some weakness underneath the hood" as U.S. semiconductor stocks underperformed, said MUFG senior currency analyst Michael Wan. That weakness likely spilled over to Asian equities, particularly the South Korean market, he added.
The benchmark Kospi fell 6.5% Tuesday, dragged down by memory-chip heavyweights Samsung Electronics and SK Hynix, which were last down 7.8% and 9.2%, respectively.
Memory-chip stocks, among the biggest beneficiaries of the AI boom, have become increasingly volatile as sentiment wavers. While their fundamentals still look solid, investors remain cautious given the memory market's cyclical nature, with severe shortages giving way to oversupply every few years, Morgan Stanley analysts said in a note.
Meanwhile, Chinese memory maker CXMT's plan to unveil a server-memory product based on a new chip structure by year-end sent shockwaves through the chip market.
CXMT's technological advances intensify competition in a market led by the South Korean manufacturers and Micron, potentially reshaping the global rankings.
Japan's Nikkei Stock Average was 2.1% lower, while Taiwan's Taiex slipped 1.8%. Hong Kong's Hang Seng Index shed 0.4%, and the city's tech gauge declined 1.5%.
Geopolitical tensions in Europe and the Middle East also weighed on investor appetite for risky assets. The Russia-Ukraine conflict has escalated despite President Trump's declaration that the sides had reached an "energy ceasefire."
Ukrainian President Volodymyr Zelensky said Monday that Russian strikes had hit energy infrastructure across his country. Kremlin spokesman Dmitry Peskov declined to comment on the announced energy ceasefire while contacts continued, according to Russian state news agency TASS.
The proposed Russia-Ukraine energy ceasefire is proving to illusive, Rodrigo Catril, a senior foreign-exchange strategist at NAB, said in a commentary.
Meanwhile, tensions in the Middle East remained high after Iran-backed Houthi militants targeted the international airport in Saudi Arabia's capital, killing at least 13 people and injuring hundreds.
Despite the geopolitical conflicts, oil futures fell in a possible technical correction. Front-month Brent futures dropped 1.2% to $105.41 a barrel, while front-month West Texas Intermediate futures declined 1.2% to $92.59 a barrel, ICE data showed.
Asian currencies consolidated against the dollar, but could come under pressure from safe-haven demand for the greenback amid the conflicts. Commonwealth Bank of Australia's Kristina Clifton expects the U.S. Dollar Index to trade higher this week as the conflict keeps energy prices elevated.
The U.S. Dollar Index slipped 0.15% to 102.44, LSEG data showed. The greenback was down 0.2% at 158.25 yen but gained 0.6% to 1,342.50 won.
