Broadcom's disappointing earnings outlook triggered a rapid cooling of the global artificial intelligence (AI) trade. South Korea's KOSPI led the decline in the Asia-Pacific market on Thursday, abruptly pushing the accumulated bubble risks from highly concentrated chip stocks and rapidly expanding leveraged funds to the forefront.
Nasdaq 100 index futures slipped 0.5%, after Broadcom plunged 14% in after-hours trading. Its latest earnings outlook fell far short of investor expectations and signaled a slower-than-expected transition progress towards AI customers. UBS Group's AI Winners Basket Index fell 1.4% on Wednesday, ending a four-day winning streak. The Asian decline extended Wall Street's weak performance on Wednesday—the S&P 500's nine-day rally came to a halt, pressured by a combination of hawkish signals from Fed officials and renewed U.S.-Iran tensions, further suppressing risk appetite.
According to a Wall Street Journal article, South Korean Finance Minister Koo Yun-cheol held a joint meeting with central bank governor Shin Hyun-song, Financial Services Commission chairman Lee Eog-weon, and Financial Supervisory Service governor Lee Chan-jin. They pledged to take "immediate measures" if necessary to respond to sharp volatility in the foreign exchange market. At the same time, officials warned about stock margin loan balances hitting a nearly 20-year high, highlighting authorities' high concern for market stability.
This adjustment affected global assets: Bitcoin slid to around $64,000, its lowest level since February this year; gold rose about 1% as bargain-hunting buying flowed in; Brent crude oil ended a three-day rally on news of an Israel-Lebanon ceasefire agreement, falling about 1% to around $97 per barrel; European stocks were mixed, with investors cautiously awaiting Friday's U.S. non-farm payrolls data.
- European stocks opened mixed, with the Euro Stoxx 50 up 0.13%, the UK's FTSE 100 down 0.12%, France's CAC 40 up 0.10%, and Germany's DAX up 0.20%.
- Japan's Nikkei 225 closed down 1.4% at 67,470.69 points. The Topix index closed down 1.1% at 3,951.85 points. South Korea's KOSPI closed down 1.8% at 8,639.41 points.
- The U.S. Dollar Spot Index was little changed.
- The yen rose 0.1% to 159.86 per dollar.
- The yield on the 10-year U.S. Treasury note fell two basis points to 4.48%.
- The yield on the 10-year Japanese government bond rose 3 basis points to 2.670%.
- WTI crude oil fell 0.8% to $95.27 per barrel.
- Spot gold rose 1% to $4,479.64 per ounce.
- Bitcoin fell 0.9% to $64,312.09.
Nasdaq 100 index futures slipped 0.5%, after Broadcom plunged 14% in after-hours trading, as its latest earnings outlook fell short of investor expectations. Broadcom also signaled that its transition towards AI customers was progressing slower than expected, though the direction is correct, it faces excessively high market expectations. UBS Group's AI Winners Basket Index fell 1.4% on Wednesday, ending a four-day winning streak.
The Asian decline extended Wall Street's weak performance on Wednesday—the S&P 500's nine-day rally ended abruptly, as renewed U.S.-Iran conflict weighed on market risk sentiment. European stocks also faced downward pressure, with Bitcoin sliding to around $64,000, its lowest level since February this year. News of an Israel-Lebanon ceasefire agreement brought some local relief, leading Brent crude oil to end its three-day rally and fall about 1% to around $97 per barrel; gold rose 0.6% to around $4,460 per ounce as bargain-hunting buying flowed in.
Billy Leung, an investment strategist at Global X Management, said, "Chip stocks had rallied sharply before the earnings reports were released. Investors holding significant paper gains don't need much reason to take profits."
South Korea's KOSPI opened with a dive on Thursday, becoming one of the worst-performing major indices in the Asia-Pacific region. Although the KOSPI is still up over 100% year-to-date and has gained over 200% since June 2025, ranking first among major global stock indices, the nearly 2% drop on the day still drew high-level attention from authorities.
According to Yonhap News Agency, Koo Yun-cheol stated after the meeting that the government is maintaining high vigilance to prevent external uncertainties from turning into widespread market panic. "(The government) will take immediate measures if necessary to respond to excessive market volatility," he added. Attending officials believe the recent market volatility is closely related to the ongoing conflict in the Middle East and continuous net selling by foreign investors in the stock market. South Korea's Ministry of Finance stated in a declaration, "The recent rapid rise in the Korean stock market has led to temporary rebalancing by foreign investors, with profit-taking activities intensifying market volatility."
While officials emphasized the robustness of South Korea's economic fundamentals—May exports surged 53.2% year-on-year, and the total stock market capitalization has risen to the sixth largest globally—they also warned that the rise in stock margin loan scale could pose potential risks to the economy and will closely monitor related developments to protect investor interests.
The stellar performance of the KOSPI masks severe divergence among its components. Among the 835 constituent stocks, only 373 have risen this year, less than half; Samsung Electronics and SK Hynix have surged about 200% and 250% year-to-date, respectively, each with market capitalization exceeding $1 trillion, together accounting for over 40% of the KOSPI's weighting, while the remaining over 800 stocks contribute less than 30% to the index's gain.
Accompanying the highly concentrated rally is a sharp expansion of leveraged speculative funds. Data from South Korea's Financial Supervisory Service shows that as of Q1 2026, the margin loan balance at the top ten securities firms has approached 36 trillion won, nearly doubling from a year ago, hitting a nearly 20-year high; investors aged 50 and above account for as high as 62.3% of this, with the loan balance for the over-60 group surging from about 3 trillion won to over 8 trillion won within a year. In Q1 2026, the number of new securities accounts opened by individuals under 18 in South Korea increased nearly tenfold compared to the same period last year.
Data from the Korea Exchange shows that the total number of circuit breaker triggers in the main board market this year has risen to the highest level since the 2008 financial crisis—a total of 20 "sidecar" program trading suspension orders have been issued this year, only 6 less than the 26 issued in all of 2008. According to the rules, program trading is suspended for 5 minutes when the KOSPI 200 futures index fluctuates by 5% or more for at least 1 minute.
Faced with the KOSPI's rapid rise, major Wall Street institutions have shown clear divergence in their stances. Goldman Sachs raised its KOSPI target from 9,000 points to 12,000 points, stating in a report that the rally in AI chipmaker stocks may continue, but warning that correction risks are rising; strategists including Timothy Moe, the bank's chief Asia-Pacific equity strategist, wrote in the report, "We prefer North Asia, where earnings growth is the strongest."
Citi warned that South Korean stock valuations are at high levels among major global markets, coupled with institutional risks in labor relations, which could dampen long-term foreign investment allocation interest. It believes the current rally is more driven by short-term sentiment. The global chief investment officer at Standard Chartered Bank pointed out that going long on South Korea has become a "highly crowded trade" and has downgraded the semiconductor sector from "overweight" to "neutral," believing a short-term correction is entirely reasonable.
Billionaire and Bridgewater Associates founder Ray Dalio said in a Bloomberg TV interview on Wednesday, "All great technological transformations create bubbles." Rob Marshall Lee, emerging markets investor and founding partner & chief investment officer at Cusana Capital, was more blunt: "The Korean market is a huge bubble." He pointed out that most Korean companies have extremely low return on equity, and the AI era will not bring fundamental change; he warned that when the cycle reverses, the profit margins of related companies could plummet from 70% to negative. "Short-term, I wouldn't short; but looking five years out, you'd likely lose a lot of money," he said.
Hawkish remarks from Fed officials simultaneously cooled market sentiment. Dallas Fed President Lorie Logan said policymakers may need to raise interest rates later this year to bring inflation back to target; New York Fed President John Williams told Yahoo Finance that the interest rate outlook remains uncertain.
According to Bloomberg, recent data showed U.S. companies added the most new jobs since January 2025, indicating hiring momentum remains strong despite rising energy costs. If Friday's non-farm payrolls data confirms this, market expectations for Fed rate hikes will strengthen further. The yield on the 10-year U.S. Treasury note fell slightly by 2 basis points to 4.48% on Thursday, after rising significantly earlier due to high oil prices and labor market resilience. Investors on Thursday will also receive the weekly initial jobless claims data to further gauge the direction of the job market.
Fawad Razaqzada, an analyst at Forex.com, said, "If U.S. economic data continues to positively exceed expectations, investors may express a more hawkish Fed expectation by betting on a stronger U.S. dollar, especially against low-yield or zero-yield assets like the yen and gold." Meanwhile, according to Bloomberg citing informed sources, Bank of Japan officials are considering raising the benchmark interest rate by 25 basis points this month and assessing the possibility of further hikes within the year, driving the yen to strengthen against the dollar on Thursday.
