Asia outperforms US, European markets as AI demand fuels tech rally

• High interest rates and sticky inflation affect real estate and consumer stocks across all regions

The massive surge in the information technology sector drove the Morgan Stanley Capital International (MSCI) Asia Index to outperform global markets in the first eight months of the year, rising 23.01%.

The Asian benchmark of global index provider MSCI outpaced the US index’s 12.21% rise and the European index’s 8.87% increase during the same period.

Asia’s regional rally was driven by a whopping 70.51% year-to-date surge in its information technology sector.

Strong artificial intelligence (AI) demand and data center investments, as well as positive earnings by tech giants like Nvidia, eased short-term concerns over chipmaking competition in the region.

Nvidia’s better-than-expected financial results and strong revenue forecast eased concerns that AI and data center investments might slow down, while the chipmaker’s shares rose 6.8%.

Reports that China was producing homegrown deep ultraviolet lithography machines eased selling pressure on chip equipment stocks ahead of August, but competition concerns were also alleviated as production of the state-of-the-art machines would reportedly remain limited in the initial phase.

Salesforce and CrowdStrike raised their expectations, supporting tech stocks, while strong chip and AI demand from China, Japan and South Korea also contributed to the tech rally in the region.

The US and European tech sectors posted more modest year-to-date gains of 22.96% and 31.63%, respectively.

Meanwhile, the communications services index rose 4.07% in Europe in August, while falling 0.71% in the US and 1.17% in Asia, indicating that the rise in information technology stocks was not reflected to the same extent in communications services.

At the same time, the US market dominated the energy sector with a 41.42% increase, led by Brent crude oil surpassing $91 a barrel in August due to escalating Middle East risks and concerns over Russian supply, compared with Europe’s 32.06% rise and Asia’s 1.64% decline.

Additionally, the materials sector grew across all three regions last month, led by a 7.85% gain in Asia, while growth in materials was further supported by expectations of US tariffs on refined copper and a four-year high in eurozone manufacturing activity.

The price of three-month copper on the London Metal Exchange rose to $14,343 per metric ton, approaching a record high of $14,527.5. Low inventories at the exchange also drove zinc prices to a four-year high.

The eurozone’s manufacturing Purchasing Managers’ Index (PMI) reached its highest level in over four years at 52.8, bolstering demand expectations for industrial metals, according to preliminary data. The final reading came in at 52.7.

The real estate sector fell 4.18% in Europe, 2.65% in Asia and 1.83% in the US last month amid high bond yields due to persistent inflation concerns worldwide.

The utilities index fell 5.25% in the US and 1.22% in Europe, while rising 0.4% in Asia.

Concerns over inflation and public debt kept bond yields high, pressuring interest-rate-sensitive sectors.

US Federal Reserve Chair Kevin Warsh’s recent hawkish statements increased expectations of a September rate hike from 35% to 60%, driving up borrowing costs.

The US two-year Treasury bond yield rose 11 basis points to 4.34%.

High borrowing costs affected financing-sensitive real estate firms, while the rise in bond yields reduced the appeal of utility stocks, which are often deemed alternatives to bonds due to their regular dividend payments.

At the same time, Asia led the other regions in the healthcare sector with a 6.86% gain in August, followed by a 4.49% rise in the US due to improved profitability expectations and increased mergers, and a 0.29% decline in Europe.

Consumer stocks were the weakest link across the three regions, with mixed or negative results.

The MSCI Consumer Discretionary Index rose 0.73% in Europe, while falling 0.11% in the US and 0.56% in Asia.

The core consumption index rose 0.04% in Asia, while falling 0.8% in the US and 2.82% in Europe.

US retail sales dropped 0.6%, and persistently high gas prices fueled concerns over shrinking disposable income, affecting consumer discretionary and core consumption indexes across the globe.