South Korea halts its entire stock market in stunning 8 per cent plunge in grim sign for Australia
Australia has been spared the pain of a stock market bloodbath today thanks to the public holiday, but there are very ominous signs for when it opens tomorrow.
There was pandemonium on Friday night as Wall Street was wiped of more than $2 trillion in a massive sell off sparked by stronger than expected jobs data.
It has had flow-on effects around the world today, with the situation spiralling so badly in Korea that the stock exchange halted all trading for 20 minutes shortly after the Kospi index of its biggest companies crashed more than 8 per cent.
The benchmark later narrowed its drop as the nation’s biggest powerhouses like Samsung and SK Hynix Inc. rebounded slightly.
However, the ASX is bound to be hit hard on Tuesday after the brutal Wall Street sell off over the weekend.
Why are stock markets crashing?
The trigger point on Friday appeared to be the release of a jobs data report in the US which showed employment running higher than expected, leading to a sharp downturn on Wall Street.
The S&P 500 index of the top companies dropped a massive 2.64 per cent in trading while the NASDAQ dropped 4.18 per cent.
This is because investors are worried a strong labour market means the Federal Reserve will switch its focus to combating inflation through rate hikes later this year.
This would come at a bad time for the AI industry — which has been the main driver of the US stock market growth in recent years and is trying to find as much cash as it can.
As its major players, SpaceX, Anthropic and OpenAI, attempt to raise trillions of dollars to fund their ambitious growth plans, they have pushed up the earnings and share prices of computer chipmakers and other technology stocks.
All three companies are looking to list on Wall Street as they try to raise money from everyday investors including here in Australia. SpaceX’s IPO is going ahead on Friday, US time.
One fear is that if the US is forced to increase interest rates it will make it even harder for these companies to find the money they need to keep growing.
The second fear is that the sector is a bubble and could burst if the major players don’t start making serious cash to justify how much they are spending.
President Donald Trump, however, was baffled by the market reaction, insisting on social media that “stocks should go up, not down,” adding: “Growth does not mean inflation!”
Global stock markets hammered, war fears
It’s not just fears of an AI collapse that have the world worried, as Asian markets tumbled on Monday.
News that Iran and Israel had struck each other sparked worries about an escalation of the Middle East crisis, adding to the gloomy mood on trading floors and sending oil prices surging more than three per cent.
The technology sector bore the brunt of losses on Monday as investors cashed out following a breathtaking surge in recent months powered by a race into all things linked to artificial intelligence.
The selling came after a closely watched report on Friday showed more than double the amount of US jobs than expected were created in May, while those in the previous two months were revised higher.
Analysts said that showed the world’s top economy remained resilient in the face of surging prices, but ramped up bets on the Fed raising interest rates.
Yields on US Treasury bonds rose as investors anticipated higher rates, while the dollar strengthened against its main rivals.
All three main indexes on Wall Street tumbled on Friday and that heavy selling extended into Asia, where tech-rich markets felt the most pain.
Seoul — which has hit multiple record highs this year — tanked as much as 8.8 per cent at one point as chipmaker Samsung shed nine per cent and rival SK hynix lost six per cent.
Taipei sank more than five per cent and Tokyo more than four per cent. There were also hefty losses in Hong Kong, Shanghai and Singapore.
Bitcoin was hovering around $63,000 after sinking below $60,000 Friday to its lowest level since October 2024, just before Mr Trump’s election, which propelled it to a record high.
“Stronger-than-expected labour market data reignited concerns that the Federal Reserve may be preparing to embark on a new tightening cycle (increasing rates),” said SPI Asset Management’s Stephen Innes.
He added that “fading hopes for progress in Middle East peace negotiations kept energy markets on edge, and a handful of disappointing guidance updates from major technology companies interrupted what had become an increasingly one-way artificial intelligence trade”.
Investors were already concerned about extended valuations in the AI realm, which has been the main catalyst for a global market surge in the past two years, eclipsing worries about the Middle East crisis.
US chipmaker Broadcom’s below-forecast revenue outlook for the third quarter added to those concerns.
Fears about a re-escalation of the Iran war pushed crude prices sharply higher after Israeli said on Monday it had struck targets in western and central Iran, as Iranian state TV reported explosions in the cities of Tehran, Tabriz and Isfahan.
The attacks came a day after Israel said its military intercepted incoming Iranian missiles, the first such barrage since an April ceasefire took hold.
Tehran called the attack a “warning” after strikes on Beirut’s southern suburbs.
