ASX shares are ‘vulnerable to further falls’: expert
Investors may still be in for a bumpy ride yet as a leading Australian economist forecasts that more volatility in global markets is likely over the coming months
3 min
Investors are nervous and “sensitive to weaker economic data”, with more volatility likely ahead for the Australian share market despite its stabilisation in recent days, says AMP chief economist Dr Shane Oliver. A dramatic global sell-off at the start of the month saw the ASX 200 plunge 465 points or 5.73 percent over two trading sessions, with other share markets around the world also tumbling.
A weak jobs report and manufacturing report out of the United States sparked the sell-off due to fears the world’s biggest economy may be slowing faster than thought and a recession may be imminent. Major ASX 200 companies were caught up in the sell-off, with shares in our biggest technology company, Wisetech, falling 12.58 percent over the two days. ASX 200 bank shares were also hit hard, with NAB shares dropping 8.52 percent and CBA shares shedding 8.35 percent.
Other major fallers included the ASX 200’s largest property stock, Goodman Group, with its share price diving 11.86 percent over the two days. Shares in the market’s biggest retail stock, Wesfarmers, fell by 6.19 percent, and the ASX 200’s biggest energy company, Woodside, lost 5.5 percent. Shares in the ASX 200’s biggest mining company, BHP, slipped 3.25 percent.
Another contributor to the global sell-off was the winding back of the Japanese yen ‘carry trade’. A carry trade is where global investors borrow money in a low-rate currency and invest in other currencies and assets, such as bonds and shares, that offer a higher rate of return. Japan had zero or negative interest rates for almost 14 years before the Bank of Japan raised rates in March to a range of 0–0.1 percent and again last month to 0.25 percent. This prompted investors to begin selling their investments, which are spread across share markets all over the world, to reduce or end their carry trades.
The threat of a recession in the US was somewhat quelled last week when the latest US initial jobless claims report showed the number of workers claiming welfare was lower than expected. Comments from the Bank of Japan’s deputy governor indicating the bank would not raise rates further while markets are unstable also calmed investors’ nerves. As a result, some losses were clawed back. The ASX 200 finished 2.08 percent lower last week, with Japanese shares down 2.5 percent and US shares down 0.04 percent.
Dr Oliver said ASX shares could rebound a little more but they remain “vulnerable to further falls over the next few months”. Dr Oliver said this was due to stretched valuations and a “very high” risk of recession both in Australia and the US. He said there were indications of deteriorating employment in both economies and share markets had not priced this into company valuations.
Dr Oliver added: “… geopolitical risk is high particularly around the US election and the Middle East with a high risk of escalation between Iran and Israel after the assassination of [a] Hamas’ leader in Iran; and we have only just started in the seasonally weak period of August and September which can sometimes extend into October/November in US election years”.
Dr Oliver said the Reserve Bank was “surprisingly hawkish” last week, with Governor Michele Bullock saying the board considered a rate rise at its meeting before deciding to keep rates on hold. She also said a rate cut was unlikely over the next six months. The RBA has also pushed out its expectations on the timing for a return of inflation to its target middle of the 2-3 percent band by six months.
“This hawkishness was a bit surprising given that in the last few months economic growth came in weaker than expected and inflation was broadly in line with RBA forecasts, the RBA’s near-term wage growth forecasts have been revised down and uncertainty regarding growth in China and the US has increased,” Dr Oliver said.
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Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
4 minA sharp technology sell-off has exposed a new anxiety on global markets: whether the enormous borrowing behind the artificial-intelligence infrastructure boom can generate sufficient returns as interest rates rise and Chinese competition intensifies.
The artificial-intelligence investment boom has powered technology shares, semiconductor manufacturers and data-centre operators to extraordinary heights. Last week, investors were given a reminder that much of this expansion is being built with borrowed money.
The technology-heavy Nasdaq Composite fell 4.5 per cent over the week ended October 16, its weakest performance since late June. Semiconductor shares suffered an even deeper correction, with the Philadelphia Semiconductor Index losing about 11.4 per cent.
The selling spread quickly through global markets. Micron Technology fell 14.6 per cent over the week, while South Korea’s Samsung Electronics and SK Hynix dropped approximately 18 per cent and 24 per cent respectively.
This was more than a routine bout of profit-taking. Investors were reassessing three interconnected risks: higher interest rates, the rapidly expanding debt burden attached to AI infrastructure and the prospect of stronger competition from Chinese memory-chip manufacturers.
The debt behind the AI build-out
Artificial intelligence requires a physical infrastructure network of enormous scale. Data centres must be built, advanced processors purchased, power supplies secured and cooling systems installed before customers begin generating meaningful revenue from them.
Technology companies are increasingly supplementing their own cash with corporate bonds, syndicated loans, equipment leases, private credit and project-level financing.
JPMorgan describes the emerging funding model as a combination of conventional corporate borrowing and project finance tied to individual data-centre assets. In Australia, the Reserve Bank estimates that syndicated loans accounted for approximately three-quarters of data-centre financing during 2025 and 2026 to date.
The numbers are becoming large enough to affect broader credit markets. The Federal Reserve Bank of Dallas has cited Wall Street estimates suggesting AI-related investment-grade bond issuance could approach US$300 billion in 2026 alone.
That borrowing is not automatically problematic. Debt can be an efficient way to finance long-lived infrastructure when future revenue is sufficiently predictable. The concern is that AI technology, customer demand and computing economics are changing much faster than the repayment schedules attached to the assets.
A data centre financed today may carry debt for years. Investors must therefore make assumptions about future utilisation rates, electricity prices, chip performance, customer concentration and the amount businesses will ultimately pay for AI computing.
When interest rates rise, those assumptions become less forgiving.
Inflation changes the calculation
September’s US inflation data intensified the pressure. Consumer prices increased 3.7 per cent over the year, ahead of market expectations and up from 3.4 per cent in August.
The hotter reading reduced confidence that interest rates would fall quickly and pushed bond yields higher. That matters particularly for companies whose valuations depend on profits expected well into the future, as well as highly leveraged infrastructure operators that may need to refinance.
CoreWeave has emerged as a closely watched test case. The specialist cloud-computing company has accumulated substantial debt and lease obligations to build AI capacity, while relying on a concentrated group of large technology customers.
Its shares fell sharply during the sell-off, while the cost of insuring its debt against default climbed. CoreWeave has argued that its contracted backlog more than covers its obligations and that financial markets do not always understand its business model. Nevertheless, its securities have become a proxy for investor confidence in debt-funded AI infrastructure.
Oracle, another major investor in AI computing capacity, fell 8.8 per cent in Friday trading, while CoreWeave dropped 15.5 per cent.
The question is shifting from how much AI infrastructure can be built to how profitably it can be operated.
China adds another source of pressure
Interest rates were not the only catalyst. Reports of advances by Chinese memory-chip producer ChangXin Memory Technologies raised concerns that lower-cost Chinese products could increase competition across the global semiconductor industry.
Memory chips are essential to AI systems, but the industry is historically cyclical. Periods of tight supply and high pricing can encourage rapid investment, eventually producing oversupply and falling margins.
The prospect of a well-funded Chinese competitor expanding its technological capabilities unsettled investors in Samsung, SK Hynix and Micron. It also demonstrated that AI-related demand does not insulate chipmakers from conventional competitive pressures.
That combination—slower rate cuts, more expensive financing and potentially cheaper supply—challenged the assumption that every company exposed to AI would enjoy continually expanding margins.
A reset rather than the end of the boom
The sell-off does not establish that the AI boom is ending. Demand for computing power remains strong, the largest technology companies continue to generate formidable cash flows and many infrastructure projects are backed by long-term customer contracts.
What has changed is the market’s willingness to overlook the price and financing structure of that growth.
The most resilient companies are likely to be those able to fund investment from operating cash flow, secure long-duration customers and demonstrate that new capacity will earn returns comfortably above its financing costs.
More speculative operators may face greater scrutiny, particularly where debt is expensive, customers are concentrated or expected revenue depends on demand that has not yet materialised.
For Australian investors, the lesson extends beyond US technology shares. Local data-centre operators, infrastructure funds, electricity suppliers and property groups are increasingly exposed to the same investment cycle.
Artificial intelligence may remain one of the defining growth themes of the decade. But last week’s correction showed that enthusiasm for the technology does not eliminate financial discipline.
The next stage of the AI boom will be judged not only by computing power, model performance or demand for chips, but by something more traditional: whether the assets being financed can generate enough cash to repay the money borrowed to build them.
Fact box
Nasdaq Composite: Down 4.5 per cent for the week ended October 16, 2026
Philadelphia Semiconductor Index: Down approximately 11.4 per cent
Micron Technology: Down approximately 14.6 per cent
Samsung Electronics: Down approximately 18 per cent
SK Hynix: Down approximately 24 per cent
US September inflation: 3.7 per cent annually
Estimated 2026 AI-related investment-grade issuance: Approximately US$300 billion
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