A China chip shock sends KOSPI down 10%

Good morning. Asian markets were rocked by a chip shock yesterday. A report that a Chinese state-owned firm has begun mass-producing DUV lithography machines, the step below cutting-edge, shook the idea that AI hardware is a safe «picks and shovels» trade. South Korea's KOSPI fell 10% in a day and Japan's Nikkei dropped 4%. KOSPI had nearly tripled since April 2025 before sliding 34% in 25 sessions, already past the typical bear-market decline.

The US saw similar pain. Memory names took the worst of it, with SanDisk down another 14%, and the Nasdaq 100 was pushed to the brink where one more bad day makes a correction. Fitch formally warned that an AI market correction is emerging as a major global credit risk. With big tech capex running near $700 billion this year, optimists and skeptics are clashing head-on over whether it will ever pay back.

The broad market held up, though. Solid earnings and lower oil offset the chip selling, the Dow jumped more than 540 points, and US stocks closed mixed. Money is rotating out of AI and into value, consumer and defensive names, and the Russell value index is beating its growth counterpart by a record margin.

The biggest event today is the Fed meeting Wednesday, US time. A strategist at Bespoke said he has never seen this much uncertainty the day before an FOMC. Most expect a hold, but some still think new Chair Warsh could surprise with a hike, and July consumer confidence at 90.8 came in below expectations.