Tech meltdown sparks US-China trade worries, causing declines amongst global equities

A fresh trade war between the United States and China appeared likely on Thursday, as most Asian equities sank. The losses were concentrated in technology and chipmaking firms.

Sentiment towards regional markets remained tense due to recent remarks made by Republican presidential candidate Donald Trump on American defence expenditure in Taiwan.

Wall Street, where the S&P 500 and NASDAQ fell due to selling in chip and technology firms, gave Asian stock markets a poor lead-in. Extended profit-taking also hurt the sectors, as investors moved into more economically sensitive areas due to expectations regarding interest rate reductions.

Asia's tech-heavy indices underperformed on Thursday, with Japan's Nikkei 225 falling 2.1% due to losses in firms related to the semiconductor industry. The most valued chipmaker in the nation, Tokyo Electron, fell more than 8% after a Bloomberg story indicated the business would be subject to increased American scrutiny on its supply to Chinese markets.

According to a report by Bloomberg, if businesses such as Tokyo Electron and ASML continue to provide semiconductor technology to China, the United States is contemplating more stringent trade sanctions against China.

Such a step may be part of the Biden administration's ongoing efforts to keep China isolated from artificial intelligence breakthroughs. It may also lead to harsh countermeasures from China, igniting another round of trade spats between the largest economies in the world.

Ahead of TSMC's crucial second-quarter reports, which are scheduled for later on Thursday, sentiment towards equities that produce chips was similarly tense.

Considered a bellwether for the chip industry, TSMC is anticipated to report excellent profitability since artificial intelligence drove up chip demand.

Following an over 8% overnight decline in its US units, TSMC fell 3.5% in Taiwanese trading. The selloff was primarily sparked by Trump's remarks and was part of a larger chip meltdown.

Moreover, the company was vulnerable to profit-taking after surging to all-time highs last year because of the excitement surrounding AI.

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(Sources: investing.com, bloomberg.com, reuters.com)