Asian stocks recover as AI concerns hit global markets

Regional equities stabilise after Wall Street's technology selloff, while Brent crude reaches a five-month high of $114.10 and US Treasury yields retreat SYDNEY: Asian stock markets recovered from early losses on Friday as investors returned to equities following a sharp technology-led selloff on Wall Street, although concerns over the rising cost of artificial intelligence investments continued to weigh on sentiment. MSCI's broadest index of Asia-Pacific shares outside Japan was little changed after falling as much as 0.8% earlier in the session, as investors bought stocks following recent declines. The index remained on course for a weekly loss of 2.4%, marking its fourth consecutive week of declines. Japan's Nikkei fell 0.5%, extending its losses for the week to 4.1%, while South Korea's KOSPI recovered from an earlier 4% decline to trade 0.1% higher. Chinese equities also recovered, with the CSI300 index gaining 0.8% after reaching its lowest level since July 2025. Hong Kong's Hang Seng rose 0.7%, following a 3% decline on Thursday. European markets were expected to open largely unchanged, with regional equity futures showing little movement. Nasdaq futures declined 0.1%, while S&P 500 futures slipped 0.2%. The recovery in Asian markets followed heavy selling in US technology stocks on Thursday, when the Nasdaq Composite dropped more than 2% as investors reassessed the financing requirements and potential returns associated with artificial intelligence infrastructure. Meta Platforms shares fell nearly 8% after the Facebook parent reported its first cash outflow in more than a decade, driven by spending on AI development. The company also announced plans to issue non-voting shares through a two-for-one split to raise additional capital for investment in the technology. Tesla shares declined 3.1% after the electric vehicle manufacturer reduced its capital expenditure plans for 2026. Diana Mousina, deputy chief economist at AMP, said positive corporate earnings growth and relatively stable economic indicators continued to provide support for equities despite the recent market weakness. She said investors were becoming more selective about AI-related investments rather than abandoning the sector altogether. Meanwhile, oil prices continued to rise as escalating tensions in the Middle East raised concerns about potential disruptions to energy supplies. Brent crude gained 0.9% to reach $114.10 per barrel, its highest level in five months, and was heading towards a weekly increase of 3.9%. The latest increase followed Houthi attacks on Saudi Arabia, which intensified concerns over the security of energy infrastructure and shipping routes in the region. In bond markets, investors moved into US government securities following the technology selloff, producing the largest daily rally in Treasuries in more than three years. The benchmark 10-year US Treasury yield fell by more than 19 basis points overnight, its steepest decline since March 2023, before stabilising at 4.9676% on Friday. The decline brought the yield back below the closely watched 5% level, reflecting increased demand for government bonds as investors reduced their exposure to riskier assets. The two-year Treasury yield also dropped by nearly 19 basis points overnight before settling at 4.6582%. The shift towards safer assets prompted investors to scale back expectations of further interest rate increases by the US Federal Reserve, with markets removing almost a quarter-percentage-point increase from their projections for next year. The implied probability of a December rate increase fell to 85%, reflecting concerns that a reversal in AI-related investment could weaken economic activity in the United States. Padhraic Garvey, ING's regional head of research for the Americas, said the decline in the 10-year Treasury yield below 5% might prove temporary, given continuing inflation pressures, fiscal deficits and substantial investment in AI infrastructure. He also pointed to uncertainty surrounding the approaching US midterm elections as another factor that could influence bond markets. Government bonds elsewhere also strengthened, with Japan's 10-year yield falling nine basis points to 2.780%, while Australia's equivalent yield declined eight basis points to 5.178%. In contrast, French government bonds remained under pressure, with the benchmark yield rising six basis points to 5.0601%, its highest level since 2002. Currency markets were comparatively stable on Friday, with the US dollar trading at 156.91 yen after falling 0.9% in the previous session. The dollar gained 0.2% against the Swiss franc to 0.8219 francs, recovering partially from an overnight decline of 0.5%. Gold remained largely unchanged at $4,021.99 per ounce after falling nearly 3% overnight, despite the broader movement towards safe-haven assets.