Key facts
- AI stocks experienced a steep rout on Friday due to concerns about China closing the technology gap.
- South Korea's KOSPI index fell over 7% to its lowest point since late July.
- US chipmakers declined 2.7% following reports of technological advancements by Chinese firm ChangXin Memory Technologies.
- Investors are concerned about the durability and profitability of the AI sector and the speed of returns on AI infrastructure spending.
- Brent crude futures were near $106 a barrel due to the widening Middle East conflict.
- LVMH reported weaker-than-expected third-quarter sales, impacted by a downturn in Chinese consumer sentiment.
Global markets faced pressure on Friday as AI-related stocks experienced a significant selloff, driven by concerns that China is rapidly narrowing the technology gap. This sentiment led to a sharp decline in South Korea's tech-heavy KOSPI index, which fell over 7% to its lowest point since late July. The downturn followed a 2.7% drop in U.S. chipmakers after reports emerged of rapid technological progress by Chinese rival ChangXin Memory Technologies (CXMT).
Investors are increasingly questioning the durability and profitability of the AI trade, alongside worries about concentration risks and the timeline for returns on substantial investments in AI infrastructure. This cautious mood has made traders less forgiving, even as global stocks have reached record highs.
The widening Middle East conflict has also contributed to a risk-off sentiment, keeping Brent crude futures hovering near $106 a barrel and sustaining inflation concerns. This environment has led bond yields to remain near multi-decade highs, though U.S. Treasuries found some safe-haven demand.
European markets were expected to follow the somber mood, with stock futures indicating a lower open. Attention was also on luxury goods companies after LVMH reported weaker-than-expected third-quarter sales, attributed to a significant deterioration in Chinese consumer sentiment that impacted demand for its flagship brands, Louis Vuitton and Dior.
Later in the day, four of the largest U.S. lenders – JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo – were scheduled to report their earnings. Investors will be assessing the impact of the recent surge in Treasury yields on dealmaking, lending growth, and funding costs across the financial industry.