Asia report: Tech stocks fall amid global AI rout

(Sharecast News) - Asia-Pacific markets showed a mixed performance on Tuesday as investor sentiment wavered following a sharp sell-off in US tech shares overnight. The sell-off came on the back of Chinese start-up DeepSeek releasing a new AI reasoning model, which it claimed to have developed at a much lower cost than incumbent models, with the ability to run on lower-spec and cheaper chips.

Trading activity was subdued with several key markets, including China and South Korea, closed for Lunar New Year celebrations.

"The US tech juggernauts suffered a sharp setback on Monday, setting global markets up for a volatile ride this week as investors brace for mega-cap earnings, the Federal Reserve's upcoming meeting, and lingering uncertainty over US president Donald Trump's trade policies," said SPI Asset Management managing partner Stephen Innes.

"US stocks tumbled, led by a sell-off in tech shares, as growing buzz around Chinese startup DeepSeek's low-cost AI model sparked concerns about the sector's inflated valuations.

"The selling pressure, which began on Asian exchanges outside China, spilled over into US stock futures, amplifying the downturn."

Markets mixed as China's AI surprise shocks markets

In Japan, the Nikkei 225 dropped 1.39% to 39,016.87, weighed down by steep losses in technology and industrial stocks.

Semiconductor equipment maker Advantest plummeted 11.14%, while Japan Steel Works and Fujikura fell 9.87% and 9.21%, respectively.

The broader Topix index, however, was relatively flat, edging just 0.04% lower to 2,756.90.

Hong Kong's Hang Seng Index managed a modest gain of 0.14% to close at 20,225.11, supported by strength in consumer and education stocks.

Alibaba Health Information Technology rose 4.34%, Nongfu Spring climbed 3.98%, and New Oriental Education & Technology advanced 3.7%.

Australia's S&P/ASX 200 slipped 0.12% to 8,399.10, pressured by significant losses in real estate and energy.

Digico Infrastructure REIT tumbled 11.53%, Paladin Energy fell 9.44%, and Goodman Group declined 8.19%.

Meanwhile, New Zealand's S&P/NZX 50 shed 0.33% to 12,957.15, with key utilities and healthcare stocks underperforming.

Infratil, Meridian Energy, and Fisher & Paykel Healthcare dropped 3.61%, 2.69%, and 2.43%, respectively.

Currency markets saw the dollar rise 0.47% on the yen to trade at JPY 155.23, as it advanced 0.62% against the Aussie to AUD 1.5991, and gained 0.58% on the Kiwi, changing hands at NZD 1.7668.

In commodities, oil prices ticked higher, with Brent crude futures last up 0.34% on ICE to $77.34 per barrel, and the NYMEX quote for West Texas Intermediate rising 0.26% to $73.36.

World's eyes lock onto China's DeepSeek, Australia business conditions rebound

Hogging the headlines on Tuesday was Chinese artificial intelligence lab DeepSeek, which unsettled Silicon Valley overnight by unveiling AI models that outperformed leading American counterparts at a fraction of the cost.

DeepSeek's open-source large language model, launched in December, was purportedly developed in just two months with a budget of under $6m, using Nvidia's lower-capability H800 chips.

The model reportedly surpassed Meta's Llama 3.1, OpenAI's GPT-4o, and Anthropic's Claude Sonnet 3.5 in independent tests on complex tasks such as coding and problem-solving.

Adding to its momentum, DeepSeek released a reasoning-focused model, R1, on Monday, which outperformed OpenAI's latest o1 in similar benchmarks.

The developments intensified scrutiny on the US AI sector, particularly its heavy investment in advanced chips and infrastructure, leading to a near-17% plunge for Nvidia's shares on Wall Street on Monday.

Elsewhere, business conditions in Australia rebounded in December, nearly returning to long-term averages after a decline in November.

According to fresh survey data from National Australia Bank, most industries recorded gains, with retail returning to positive territory for the first time since late 2023.

However, retail conditions remained weaker than the services sectors, which continued to outperform.

Business confidence edged up slightly, though it remained below its historical average, with forward orders following a similar pattern.

Capacity utilisation rose marginally to 82.8%, well above the long-term average of 81.3%, reflecting resilience in activity despite ongoing cost pressures.

The survey highlighted mixed trends across industries and regions - retail confidence surged, while mining and construction saw sharp declines.

On a state-by-state basis, South Australia reported significant improvement in conditions, though it remained the weakest state overall, while Western Australia lagged with no improvement.

Cost pressures persisted, with purchase costs and output prices rising, although labour cost growth eased.

Output price growth ticked up to 0.9% on a quarterly equivalent basis, while retail prices edged higher to 0.7%.

Reporting by Josh White for Sharecast.com.