Asian stocks plunged in a circuit-breaker-style crash, with South Korea triggering its circuit breaker during trading, and the Nikkei falling below the 50,000-point mark

Author: Jinshi Data

Asian stocks followed overnight selloff in U.S. markets on Wednesday, as investor concerns over valuations dented market confidence.

At the time of writing, South Korean shares led declines with losses exceeding 6%, as valuation worries hit recently strong-performing chipmakers, defense, and shipbuilding stocks. Chip manufacturers Samsung Electronics and SK Hynix were major drags.

The KOSPI index broke below the critical 4,000 level, retreating further from its record high. The drop brings its two-day cumulative loss to over 7%, marking its worst performance since August 2024.

The Korea Exchange triggered a circuit breaker for the KOSPI index after the Korea Composite Stock Price Index 200 futures fell 5%, halting algorithmic trading for five minutes. Subsequently, as losses widened, the exchange suspended algorithmic trading in KOSDAQ futures.

South Korean equities have ranked among the world's top-performing markets this year, driven by investor appetite for artificial intelligence optimism and corporate reform initiatives backed by the president. However, recent warnings from Wall Street executives about stretched valuations are now threatening to dampen investor enthusiasm.

"After surging 20% in October alone, investors appear fatigued, compounded by rising concerns over an AI bubble," said Huh Jae-Hwan, strategist at Woori Investment & Securities, adding, "There are indeed areas in the market that resemble a bubble."

The Nikkei 225 dropped below 50,000 for the first time since October 27, falling 3.7% on the day.

Taiwan's Weighted Index opened down 1.67%. Hong Kong's Hang Seng Index declined 0.97% at open, while the Hang Seng Tech Index fell 1.75%. China's A-shares: the Shanghai Composite opened down 0.95%, Shenzhen Component down 1.68%, and ChiNext down 2.08%.

U.S. and European stock index futures also continued lower. Euro Stoxx 50 futures dropped over 1%, German DAX futures fell 1%, and UK FTSE futures declined 0.4%.

Prior to this pause in global equity gains, robust optimism around artificial intelligence and expectations of continued Federal Reserve rate cuts had propelled benchmark U.S. indices nearly 40% higher from April lows. But as gains became increasingly concentrated in a narrow group of stocks, sentiment and technical indicators began signaling overheating, prompting major Wall Street firms to suggest a market correction would be healthy.

Concerns mounted that equity markets may have become overinflated after CEOs of Wall Street giants Morgan Stanley and Goldman Sachs questioned whether sky-high valuations could be sustained. Selling pressure intensified after Michael Burry, the hedge fund manager known as the "Big Short," disclosed short positions in Palantir and Nvidia.

"Regardless of longer-term trends, the stock market is positioned for some meaningful near-term pullback," said Matt Maley, analyst at Miller Tabak.

"The entire market is a sea of red. There’s little reason to buy right now, and we lack short-term catalysts as we approach Nvidia’s earnings report on November 19," said Chris Weston, head of research at Pepperstone Group.

Mike Gitlin, CEO of Capital Group, said Tuesday at a financial summit organized by Hong Kong Monetary Authority that corporate earnings have been strong but "the challenge lies in valuation levels."

"Market standards are rising—now even modestly beating expectations isn't enough to drive share prices higher," said Anna Wu, cross-asset strategist at Van Eck Associates in Sydney, in an interview with Bloomberg Television.