AI funding fears hit Asian tech stocks and lift sovereign bonds
Asian equities fell on Friday as investor concern over the scale of AI-related funding needs hit technology stocks and triggered the largest one-day rally in US Treasuries in more than three years. Markets also sharply reduced expectations of further Federal Reserve tightening, with the implied probability of a December rate rise falling to 85%.
MSCI's broadest index of Asia-Pacific shares excluding Japan fell 0.3%, extending its weekly loss to 2.7% and marking a fourth consecutive week in the red. Japan's Nikkei dropped 1.3% and was down 5% for the week, while South Korea's KOSPI fell 1.7%, with memory chipmaker SK Hynix down 2.5%. Taiwan's market was closed for a typhoon, and an index of mainland Chinese blue chips lost 1.1% to its lowest since July 2025, about 20% below its late-June peak. Hong Kong's Hang Seng edged up 0.1% after a 3% fall on Thursday.
On Wall Street, the Nasdaq slumped more than 2%. Meta shares lost nearly 8% after the company reported its first cash outflow in more than a decade, attributed to AI-related expenditure, and announced plans to issue non-voting shares in a two-for-one split to raise capital for the technology. Tesla fell 3.1% after cutting its 2026 capital spending plans.
Charlie McElligott, managing director for cross-asset strategy at Nomura Securities International in New York, said in a note that AI was under pressure and that US Treasury bonds were working as a hedge again, as the market seemed to be repricing in real time the probabilities of a US growth scare off the back of the AI reset.
The benchmark 10-year Treasury yield slid more than 19 basis points overnight, the biggest drop since March 2023, before steadying at 4.9591% and falling back below the 5% level. The two-year yield slumped nearly 19 basis points overnight and was last flat at 4.6566%. Japanese 10-year government bond yields fell 9 basis points to 2.790% and Australia's 10-year yield dropped 10 basis points to 5.164%.
Padhraic Garvey, ING's regional head of research for the Americas, said he expected the 10-year yield to snap back above 5%, citing inflation, fiscal deficit and AI boom underpinnings. He added that the US midterm elections were approaching as an excuse for trouble, but that it would need some degree of calm in the risk space first.
Safe-haven currencies gained, with the dollar down 0.2% at 156.44 yen after a 0.9% overnight fall, and 0.1% lower at 0.8196 Swiss francs, a one-month low. Gold was flat at $4,021.99 an ounce after a nearly 3% drop overnight. Brent crude hit a five-month peak of $114 a barrel, with Houthi attacks in Saudi Arabia stoking concerns over energy supply disruption as fears grow that the Middle East conflict could escalate.
