Asian chip stocks plummeted on Thursday following a steep decline on Wall Street triggered by reports suggesting the United States is contemplating stricter controls on exports of advanced semiconductor technology to China.
Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chipmaker, bore the brunt of the sell-off, shedding approximately T$2 trillion ($61.35 billion) in market value over two days.
The turmoil intensified for TSMC amid reports of potential U.S. restrictions and comments from U.S. presidential nominee Donald Trump advocating that Taiwan compensate the U.S. for defense support.
TSMC’s shares fell over 3%, joining other tech giants like South Korea’s Samsung Electronics and SK Hynix, down 1.85% and 4.1% respectively, and Japan’s Tokyo Electron, which slumped more than 8%.
The Global X Asia Semiconductor ETF recorded a 2.7% decline, trimming its year-to-date gains to 13.5%.
A Bloomberg News report during Asian trading hours on Wednesday highlighted discussions within President Joe Biden’s administration about implementing the foreign direct product rule, which could halt the sale of products made using American technology.
This potential move could impact companies such as Tokyo Electron and the Netherlands’ ASML.
TSMC’s American Depository Receipts dropped 8% on Wednesday. In its first-quarter earnings report, TSMC revealed that 69% of its revenue came from North America, with 9% from China.
Washington’s protective stance towards the U.S. semiconductor industry, viewed as crucial in its competition with China, has heightened concerns among investors.
“It appears that macroeconomic and geopolitical factors have outweighed fundamentals,” said Kang Jin-hyeok, an analyst at Shinhan Securities in Seoul.
Kang pointed to strong recent earnings from Samsung and ASML but noted that ASML’s significant sales to China make it vulnerable to potential U.S. restrictions.
China accounted for about 49% of ASML’s lithography system sales in the second quarter and represents approximately 20% of its order backlog.
Despite second-quarter earnings that surpassed expectations and showed increased bookings linked to artificial intelligence, ASML’s shares plummeted over 10% on Wednesday.
The Biden administration has taken aggressive steps to restrict Chinese access to cutting-edge chip technology, including sweeping measures in October targeting exports of AI processors from firms like Nvidia.
Recent developments in Sino-U.S. relations have accelerated what initially seemed to be a shift in investor focus from Big Tech to smaller value stocks, driven by expectations of lower U.S. interest rates benefiting smaller companies.
“Positioning in the semiconductor/AI space had become excessively skewed, and the comments on import restrictions triggered a risk-off event,” said Jon Withaar, managing an Asia special situations hedge fund at Pictet Asset Management.
Tech stocks have outperformed this year amid the global AI surge, with the Nasdaq up 20% and the S&P 500 surging 17%.
However, the sell-off in Asia on Thursday pushed major indices into negative territory, with Tokyo’s Nikkei down 2%, Taiwan stocks sliding 2.3%, South Korea’s KOSPI falling 1.34%, and Hong Kong’s Hang Seng tech index losing 1.5%.
($1 = 32.6010 Taiwan dollars)
