Daijiworld Media Network - Hong Kong

Hong Kong, Jul 28: Asian stock markets declined sharply on Tuesday, led by heavy losses in semiconductor shares, as investors grew concerned over the enormous funding requirements of the artificial intelligence (AI) boom. A sharp fall in oil prices also did little to ease worries over the possibility of another US interest rate hike.

South Korea's benchmark KOSPI index plunged more than 8 per cent to a three-month low, triggering a circuit breaker, while Japan's Nikkei fell 4 per cent after the Philadelphia Semiconductor Index dropped 2.2 per cent overnight.

Chipmaker Nvidia fell 5 per cent on Wall Street after the Wall Street Journal reported that the company was in discussions to provide around $250 billion in financing guarantees for OpenAI as part of a large-scale data centre project.

In China, however, investor interest in the domestic semiconductor industry remained strong. Shares of CXMT Corp, which had surged 466 per cent on their market debut, reflected growing confidence in China's AI and chipmaking capabilities, although the stock later fell 7 per cent in early Tuesday trade.

Market sentiment was further affected after reports that China had begun manufacturing domestically developed immersion deep ultraviolet lithography machines, a technology long dominated by Dutch company ASML. The development sent ASML shares down 8.5 per cent.

Among Asian chipmakers, South Korea's SK Hynix dropped nearly 11 per cent, while Samsung Electronics lost more than 9 per cent. In Japan, Kioxia plunged 18 per cent and Tokyo Electron fell 9.8 per cent. Chinese semiconductor stocks also traded lower.

Meanwhile, Brent crude futures extended Monday's steep losses, falling to $87.55 per barrel after nearly a 9 per cent decline in the previous session. Oil prices weakened as tensions between the United States and Iran eased following Washington's decision to suspend planned air strikes.

US President Donald Trump said on Monday that discussions with Iran were progressing positively and that there was a possibility of reaching an agreement.

The easing in geopolitical tensions pushed the benchmark 10-year US Treasury yield down by about four basis points to 4.64 per cent, although shorter-term yields remained largely unchanged.

Markets have priced in a 38 per cent probability that the US Federal Reserve will raise interest rates by 25 basis points at its policy meeting on Wednesday.

Analysts said uncertainty over oil prices and geopolitical developments continued to shape expectations for central bank policy.

The US dollar remained firm, with the euro trading below $1.14 at $1.1370, while the Australian dollar remained just below 70 US cents.

The Japanese yen traded at 163.78 against the US dollar, remaining close to a four-decade low. Investors are closely watching this week's Bank of Japan policy meeting, with concerns that further yen weakness could trigger intervention by Japanese authorities in the foreign exchange market.