Summary of Key Events
Last Friday, the AI and semiconductor sectors in the U.S. stock market plummeted due to disappointing earnings (the Philadelphia Semiconductor Index fell by 10% in a single day), triggering a collective slump in the Asia-Pacific markets on Monday (stock market circuit breakers in South Korea, significant declines in tech stocks in Japan, Hong Kong, and China). Meanwhile, the instability of the Middle East ceasefire agreement pushed up oil prices. Rising expectations of interest rate hikes by the Federal Reserve due to strong U.S. employment data caused gold prices to plummet, with several investment banks lowering their target prices for gold.
Asia-Pacific Markets: A “Black Monday”
The poor performance of U.S. chip giant Broadcom on Friday failed to meet market expectations, leading to a collapse in AI and semiconductor stocks that were previously in high demand. The Philadelphia Semiconductor Index dropped by 10%, wiping out over one trillion dollars in market value. This negative sentiment spread to the Asia-Pacific region on Monday:
- South Korea's stock market was the hardest hit: The benchmark KOSPI index fell by 8%, triggering a circuit breaker (for the second time this year). Samsung Electronics and SK Hynix declined by 11% and 10% respectively; both companies had seen significant gains of over 150% this year, creating substantial pressure to lock in profits.
- Japan also experienced declines: The Nikkei 225 index fell by 4%, and the TOPIX index fell by nearly 3%, compounded by the downward revision of Japan's first-quarter GDP.
- The Chinese market was affected: The Hong Kong Hang Seng Tech Index and the STAR 50 Index both lost more than 3%. The Shanghai Composite Index and the Shenzhen Component Index also fell by nearly 2% and 3% respectively in the afternoon session.
Even Nvidia's announcement of a cooperation with South Korea to develop AI data centers on Sunday did not stop the decline, as these stocks had risen too much earlier and were overvalued, making them vulnerable to panic selling at the first sign of trouble.
Behind the South Korean Stock Market Circuit Breaker
South Korea's stock market was one of the best-performing in the world this year, driven by the AI boom and strong semiconductor stocks. However, the recent crash was caused by a combination of several negative factors:
1. Excessive gains earlier in the year: Samsung and SK Hynix had gained over 150% this year, attracting large amounts of capital and increasing market volatility.
2. Exchange rate and interest rate concerns: The weakening of the Korean won raised import costs, and there were fears that the Bank of Korea would raise interest rates further (which would increase borrowing costs for businesses and put pressure on the stock market).
3. Profit-taking: Investors who had made profits earlier in the year sold their shares to lock in gains as U.S. stocks tumbled.
The Middle East Situation Escalates, Driving Up Oil Prices
The ceasefire agreement in the Middle East is again under threat, raising concerns about energy supply:
- Oil prices soar: Brent crude oil reached $97.5 per barrel, and WTI crude oil was near $95 per barrel.
- OPEC+ production increase fails to curb prices: Although OPEC+ announced a 188,000-barrel-per-day increase in production for July, export routes in the Persian Gulf are blocked, preventing most countries from increasing production.
- Geopolitical risks: Experts believe the ceasefire agreement is fragile, and shipping in the Red Sea could be further restricted, potentially leading to continued price increases (which would exacerbate global inflation).
Gold Prices Fall Despite Being a Safe-Haven Asset
Gold, traditionally considered a safe-haven asset, declined this time due to increased expectations of Federal Reserve interest rate hikes:
1. Strong employment data: The U.S. added 172,000 jobs in May, nearly double the expected figure, indicating a strong economy and likely continued interest rate hikes by the Fed.
2. Rising U.S. bond yields and the strengthening dollar: The yield on 10-year U.S. Treasury bonds rose to 4.55% (a two-week high), and the dollar strengthened. As gold is a non-interest-bearing asset, higher bond yields made U.S. bonds more attractive. A stronger dollar also increased the cost of buying gold.
3. Gold prices plummet: Spot gold prices fell below $4,300 per ounce, hitting a 11-week low and erasing all of the year's gains.
Institutions Are Bearish on Gold
Several investment banks have recently lowered their target prices for gold:
- Reasons: Reduced expectations of Federal Reserve interest rate cuts (Goldman Sachs even predicts no cuts this year), rising real interest rates, a stronger dollar, and funds shifting towards tech stocks (the AI boom in the U.S. stock market has drawn capital away from gold).
- Examples: Morgan Stanley lowered its target price for gold in the second half of 2026 from $3,050 to $2,880; Deutsche Bank reduced it from $5,000 to $4,800; Goldman Sachs from $3,300 to $3,000.
- Long-term support remains: Gold still accounts for 27% of global official reserves, surpassing U.S. Treasuries as the largest reserve asset, indicating ongoing demand from central banks.
Overall, the market volatility was driven by a combination of factors: a correction in tech stocks, geopolitical risks, and tightening monetary policies. In the short term, markets may continue to be volatile. In the long run, the performance of the AI sector, the stability of the Middle East situation, and the pace of Federal Reserve interest rate hikes will be key determinants. Investors should diversify their investments and avoid chasing hot sectors.