(Sharecast News) - Asia-Pacific markets fell on Monday as a sell-off in technology stocks accelerated, with investors souring on AI-linked names after the tech-heavy Nasdaq dropped more than 4.5% last week.
"Monday's market tone is being set by the escalation in the Middle East, after Iran struck Israel and Israel retaliated," said Patrick Munnelly, market strategy partner at TickMill.
"Brent is up ... putting the inflationary consequences of the conflict back at the centre of the rates debate."
The weakness followed Broadcom's fiscal second-quarter revenue miss last week, which triggered a broad retreat across semiconductor and AI-related shares.
The VanEck Semiconductor ETF lost more than 9% on Friday, while SoftBank's British chip firm Arm Holdings and Micron Technology each fell more than 13%.
Goldman Sachs also pushed back the final two rate cuts in its Federal Reserve forecast to June and December 2027, saying: "The labor market has been stronger than we anticipated."
"But geopolitics is not the only driver," Munnelly said.
"Friday's much stronger US employment report is still rippling through Fed pricing, with December FOMC expectations moving from around 15 basis points of hikes priced on Thursday to roughly 30 basis points now.
"That combination - higher oil and stronger jobs - is pushing US market rates higher."
Munnelly said the May payrolls report was difficult for the Fed to dismiss, with headline job gains of 172,000 against consensus expectations for 88,000 and the prior two months revised up by a net 93,000.
"The profile of revisions matters," he said.
"During last year's downswing, the Fed had been assuming payroll prints were overstating job growth by around 60k per month. Now the opposite may be true."
Asian technology names extended the decline.
Samsung Electronics and SK Hynix, which together account for more than 40% of South Korea's Kospi, fell 10.18% and 7.68%, respectively.
TSMC was down 2.96%, while Hon Hai Precision, also known as Foxconn, fell 5.27%.
SoftBank Group dropped 6.1%, while Tokyo Electron lost 7.45% and Advantest declined 5.72%.
European chip stocks followed Asia lower, with ASML, Infineon, STMicroelectronics, ASM International and Besi each falling more than 3% in early trading.
Broader sentiment was also hit by a fresh escalation in the Iran war, signalling that the conflict was far from over.
Oil prices rose, with Brent crude futures last up 3.45% on ICE at $96.30 per barrel, and the NYMEX quote for West Texas Intermediate gaining 3.88% to $94.05.
"For the Fed, that creates a policy problem," Munnelly said.
"Last year's rate cuts appear to have done what they were intended to do - support the labour market.
"But that success now collides with a renewed energy shock and a broader pick-up in pipeline costs linked to the Iran conflict.
"If hiring is absorbing labour-market slack just as oil prices rise, the risk of second-round inflation effects increases," he added.
"Add still-easy financial conditions - with equity gains offsetting some of the drag from rates and energy - and the case for a tighter policy stance becomes more compelling."
Stock markets fall across the Asia-Pacific region
Japan's Nikkei 225 fell 3.85% to 64,024.60, while the broader Topix dropped 2.45% to 3,852.38.
Sumco Corporation declined 12.84%, Murata Manufacturing lost 10.15%, and Socionext fell 10.05%.
Japan's GDP expanded 0.5% quarter-on-quarter in the first quarter, matching flash data and accelerating from 0.2% growth in the fourth quarter.
The reading was above market expectations for 0.3% growth and marked the strongest quarterly expansion since the first quarter of 2025.
Japan's current account surplus rose to JPY 3,907.8bn in April from JPY 2,370.0bn a year earlier, beating expectations for JPY 3,137bn.
The goods surplus increased to JPY 395.7bn as exports rose 13.9% and imports grew 9.5%, while the primary income surplus widened to JPY 4,210.0bn.
The services deficit narrowed to JPY 416.0bn from JPY 725.9bn, and the secondary income deficit fell to JPY 281.8bn from JPY 553.1bn.
In China, the Shanghai Composite fell 1.7% to 3,959.34, while the Shenzhen Component dropped 3.22% to 14,821.19.
Xi'an Bright Laser Tech lost 11.37%, Guangdong Mingzhu Group fell 10.02%, and Hubei Zhenhua Chemical Co declined 10.01%.
Hong Kong's Hang Seng Index fell 1.22% to 24,657.06.
Baidu dropped 7.64%, WuXi Biologics lost 7.21%, and CMOC Group declined 6.31%.
South Korea led regional losses, with the Kospi 100 plunging 8.56% to 9,275.98.
Hanmi Pharmaceutical fell 16.4%, Korea Investment Holdings lost 12.37%, and Hyundai Mobis declined 12.2%.
Australia markets were closed for the King's Birthday holiday.
New Zealand's S&P/NZX 50 fell 0.94% to 13,038.24, with Vista Group International down 4.05%, SkyCity Entertainment Group losing 4%, and Summerset Group Holdings falling 3.47%.
Dollar weaker against regional peers
In currencies, the dollar fell 0.19% against the yen to JPY 159.99, declined 0.15% against the Australian dollar to AUD 1.4168, and slipped 0.34% against the New Zealand dollar to NZD 1.7194.
"The market is facing a more difficult version of the same shock," Munnelly said.
"Rising oil alone would have been uncomfortable.
"Rising oil alongside a strong US jobs report is much harder for the Fed to look through."
Reporting by Josh White for Sharecast.com.
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