The chip crash has hit Asian stock markets and the Fed's expectations are putting pressure on the markets.

The sharp decline in tech stocks hit Asian markets this Tuesday, July 28, as concerns over the sustainability of the AI boom, China’s progress in semiconductor manufacturing, and potential rate hikes by the U.S. Federal Reserve weighed heavily on investor sentiment. The Korean Kospi index plummeted more than 10%, reaching its lowest level in three months, prompting the activation of a circuit breaker, a mechanism designed to halt trading during extreme market volatility. The sell-off was driven largely by chipmakers following reports of technological advancements in China that could challenge Western dominance in key semiconductor sectors. According to AFP, the massive selling pressure came after news emerged that a Chinese company based in Shanghai had begun mass production of a chip-making technology previously controlled by Dutch firm ASML. This development reignited fears about the growing influence of Chinese firms in the global semiconductor industry, particularly among companies that have benefited from the rapid growth of artificial intelligence over the past two years. In South Korea, SK Hynix dropped 14.7%, while Samsung lost over 13%. Both companies have seen their shares fall nearly 50% since hitting record highs just a month earlier. In Tokyo, losses were led by Kioxia, Advantest, and Tokyo Electron, companies closely tied to semiconductor production and equipment supply. In Taiwan, the downturn was fueled by TSMC, one of the world's largest chip manufacturers. Market expectations for further interest rate increases by the Federal Reserve added to the pressure. A report from Max Capital indicated that investors assigned a 36% probability to the Fed raising rates by 25 basis points during its upcoming meeting. Such a move would likely make borrowing more expensive and reduce the present value of future earnings, especially for high-growth sectors like technology. On Wall Street, futures pointed to a negative opening, with shares of Nvidia and Micron Technology trading lower before the market opened, in line with the broader sell-off in semiconductor-linked companies. Meanwhile, yields on U.S. Treasury bonds dipped slightly due to a pause in attacks in the Middle East, though they remained near record levels set during the previous week. The situation has created a complex mix of factors influencing global financial markets, with investors recalibrating their strategies amid shifting geopolitical and economic conditions. The fallout from the sell-off has been widespread, affecting major indices across Asia. The Nikkei 225 in Tokyo closed down 4%, while the Taiwanese market also retreated more than 4%. Meanwhile, the Shanghai Composite fell 1.2%, although the Hong Kong market managed a slight gain of 0.4%, bucking the downward trend. This correction follows a period of aggressive gains that pushed many tech firms and stock indexes to all-time highs. Now, investors are beginning to reassess valuations and question whether the recent surge was sustainable. The combination of slowing AI adoption, rising competition from Chinese firms, and the looming threat of tighter monetary policy has created a perfect storm for equity markets, with uncertainty continuing to dominate investor behavior.