Following South Korea, Singapore issues AI bubble warning: Technology stock valuations are too high, and the risk of market correction is increasing!

After the Korea Exchange issued a rare warning to chip giants, the Singapore central bank also officially issued a warning about the frenzy in AI-driven tech stocks.

The Monetary Authority of Singapore (MAS) explicitly pointed out in its annual Financial Stability Assessment report released on Wednesday that certain stock markets, particularly in the technology and artificial intelligence sectors, are showing "relatively tight valuations." The authority warned that if the market's optimistic sentiment regarding AI's ability to generate future returns reverses, it could trigger "a sharp correction in the broader stock market, as well as further defaults in the private credit market."

This warning comes at a timely moment. Just this Tuesday, global semiconductor stocks faced a sell-off due to disappointing earnings outlooks from Palantir and AMD, resulting in a market value evaporation of approximately $500 billion in a short period. This made MAS's risk alert particularly specific and urgent.

It is noteworthy that this is not an isolated incident. Not long ago, the Korea Exchange also took rare warning measures against chip manufacturer SK Hynix. Driven by positive news as a top supplier of high-bandwidth memory for Nvidia, SK Hynix's stock price surged nearly 240% this year. In response, the Korea Exchange issued an "investment caution notice," which led to a 5.4% drop in the company's stock price on Tuesday, marking the largest decline in three weeks.

Valuation and Earnings Disconnection, Bubble Risks Highlighted

The core concern of Singapore's regulatory authorities lies in the extent to which the current surge in tech stocks is supported by real earnings growth.

The Monetary Authority of Singapore noted in its report that this round of stock market surge is largely driven by AI-related investments, which may lead many investors to have overly concentrated risk exposure in the information technology sector.

Data supporting this concern shows a significant disconnection between valuations and earnings growth. According to a Bloomberg index tracking 45 major cloud, semiconductor, and hardware companies, these companies' forward price-to-earnings ratios are currently around 23 times, far higher than the 14 times in April. However, during the same period, their earnings expectations have only grown by 13%.

The Monetary Authority of Singapore believes that this mismatch indicates that most of the stock price increases are due to valuation expansion rather than profit growth.

In addition to valuation bubbles, some AI companies' operating models have also drawn the attention of regulators. The Monetary Authority of Singapore specifically mentioned that some large tech companies are using "novel and potentially cyclical private financing arrangements" to fund their expansions.

This financing model has created "increasing revenue pressure" for some AI companies, as they need to generate sufficient income to repay investors and creditors. If revenue growth falls short of expectations, these companies' financial situations will face severe tests, which could then transmit to the broader market.

Rare Warnings from Asian Regulators from Seoul to Singapore

From Seoul to Singapore, the actions of regulatory authorities indicate that official vigilance regarding market overheating is increasing.

Wallstreetcn reported that the Korea Exchange issuing an "investment caution notice" for a large blue-chip stock like SK Hynix is seen as an "extremely rare" move by the market The mechanism is designed to remind investors to act cautiously when there are unexplained large fluctuations in stock prices.

Although such alerts do not immediately halt trading, they send a clear signal to the market. In South Korea, this serves as a warning signal for higher-level alerts (such as restricting margin trading or even suspending trading), indicating that regulators are closely monitoring irrational exuberance in the market.

Broader Macro Risks

It is noteworthy that the scope of the report from the Monetary Authority of Singapore is not limited to technology stocks. The report also highlights potential risks in other markets. For instance, in the sovereign bond market, concerns about fiscal sustainability are growing due to high levels of public debt.

It also pointed out that recent credit losses in private credit funds indicate that corporate credit risk is on the rise.

Additionally, the Monetary Authority of Singapore stated that it will remain vigilant regarding the development of the Singapore real estate market and ensure a "stable and sustainable private residential market."