The Return of the ‘R’ Fear: Global Stock Markets Tumble Amid U.S. Economic Worries

Economic fears originating from the U.S. have resurfaced, causing a significant decline in global stock markets, including Korea’s KOSPI. Notably,

Economic fears originating from the U.S. have resurfaced, causing a significant decline in global stock markets, including Korea’s KOSPI. Notably, Nvidia, a leading AI company, saw a sharp drop of over 9% due to concerns over an AI bubble and antitrust investigations by U.S. authorities.

After a month, the fear of an economic recession, known as ‘R’ (Recession), has reappeared, leading to turmoil in global stock markets. The U.S. manufacturing index, which had signaled a decline last month, performed worse than expected, contributing to a sharp drop in tech stocks like semiconductors. Additionally, the Bank of Japan's hint at potential interest rate hikes reignited concerns about the unwinding of the 'yen carry trade'—a strategy where investors borrow yen at low interest rates to invest in higher-yielding assets abroad.

On the 4th, the KOSPI in South Korea closed at 2,580.80, down 83.83 points (3.15%) from the previous day, marking its biggest drop since the Black Monday of August 5th. The KOSDAQ also fell by 3.76%, ending at 731.75. Similarly, Japan’s Nikkei 225 index declined by 4.24% due to fears of unwinding the yen carry trade amidst U.S. economic concerns.

The Asia-Pacific markets felt the brunt of the renewed recession fears from the U.S. The Institute for Supply Management’s (ISM) manufacturing Purchasing Managers' Index, which had previously caused market declines, again fell short of market expectations, coming in at 47.2 instead of the anticipated 47.5, heightening investor anxiety.

The AI bubble theory, highlighted by Wall Street firms like JPMorgan, further fueled market declines. Michael Semblest, JP Morgan’s Chief Investment Strategist, pointed out that leading companies often see a reduction in market share and valuation after reaching a peak, targeting Nvidia specifically. BlackRock also suggested that signs are emerging indicating a need to reconsider AI investments.

As recession fears and AI bubble concerns combined, Nvidia’s stock plummeted by 9.5%. This led to a loss of over $270 billion in market value in just one day, the largest single-day loss in U.S. corporate history. The intensification of antitrust investigations into Nvidia also exacerbated the decline. Semiconductor companies like AMD and Broadcom also experienced significant drops, causing the Nasdaq to fall by over 3%. The decline in global semiconductor stocks affected South Korean companies like SK Hynix and Samsung Electronics, with their stock prices falling sharply.

Furthermore, Bank of Japan Governor Kazuo Ueda’s reaffirmation of interest rate hikes negatively impacted global markets. 

The increase in recession fears coupled with potential slowdowns in demand from China—one of the world’s largest commodity consumers—also led to declines in international commodity prices. West Texas Intermediate (WTI) crude oil for October delivery ended at $70.34 per barrel, down 4.36% ($3.21) from the previous trading day, marking the lowest level of the year. Copper futures, a leading economic indicator, also fell by 2.84%.

Experts predict that global stock market adjustments may continue in the short term. Professor Kim Young-ik from Sogang University stated, “The U.S. stock markets appear to be overvalued compared to economic indicators. There is a possibility of further declines in stock prices, especially with the upcoming U.S. unemployment data release on the 6th.”