ASX closes in the red as energy and data centre stocks decline

Welcome to your five-minute recap of the trading day.

The numbers

The Australian sharemarket fell below 8400 points on Tuesday after a mixed day of trading, which was dominated by news of the emergence of DeepSeek, a powerful Chinese AI startup, which is challenging America’s dominance in artificial intelligence.

The new and apparently lower-cost player from China saw America’s big tech stocks hammered on Wall Street overnight, which trickled down to local ASX-listed tech companies and real estate investment trusts invested in data centres.

Wall Street slumped overnight with Nvidia tumbling.Credit: Reuters

Despite modest gains in midday trading, the S&P/ASX200 finished 9.8 points, or 0.1 per cent, lower at 8399.1 points. Six of the 11 industry sectors declined, with property stocks the biggest losers, followed by the energy and tech sectors. On the upside, retailers, communication services and healthcare advanced.

The Australian dollar saw slight losses, and was valued at US62.6¢ as of 4.50pm AEDT.

The lifters

The session’s top performer was pharma giant Sigma Healthcare. Its stock gained 12.2 per cent after its merger partner Chemist Warehouse said its first-half sales rose 13 per cent to a record $5.15 billion. The two companies are set to complete their tie-up in February, a decision approved by the ACCC despite concerns of market concentration from other industry players.

Consumer discretionary stocks were the best performing, buoyed by gains from gambling machine manufacturer Aristocrat Leisure (up 4.2 per cent) and retail conglomerate Wesfarmers, the owner of Kmart, Officeworks and Bunnings (up 1.1 per cent).

In the mining sector, Fortescue added half a percentage point after news that the mining giant has entered a deal with Red Hawk Mining to gain access to an undeveloped iron ore mine near its major Solomon project in Western Australia. The offer price of as much as $1.20 cash per share implies a fully diluted equity value for Red Hawk of $254 million, Fortescue said on Tuesday. Red Hawk’s share price soared more than 45 per cent to the offer price.

All four big banks were in the green, as CBA – the biggest stock on the ASX – lifted 0.4 per cent, while Westpac, ANZ and NAB all rose about 1 per cent, respectively. With Monday’s Australia Day holiday, it was the first trading session after CBA announced on Friday it had sold its remaining 5.45 per cent stake in Chinese lender Bank of Hangzhou for about $940 million, having sold a larger stake in the bank in 2022.

The laggards

Tech stocks – market favourites over the past year – tumbled on Wall Street after Chinese tech firm DeepSeek unveiled a large Artificial Intelligence language model that could compete with US giants such as OpenAI’s ChatGPT and Meta’s Llama at potentially a fraction of the cost.

Uncertainty from the US rippled through to the Australian tech sector. Data centre operator NextDC led the charge, dropping sharply by 7.2 per cent, while WiseTech Global and family app Life360 dropped by 0.5 per cent and 2.3 per cent, respectively.

Real estate investment trusts also declined, led by an 8.2 per cent slump by the biggest stock in the sector, Goodman Group, which is pivoting to data centre development.

Meanwhile, energy stocks weakened after oil prices sunk 1.7 per cent on Monday as US President Donald Trump threatened to introduce a wide-ranging set of tariffs on imports, including potentially on some key industrial commodities such as steel, aluminium and copper.

Uranium producers Deep Yellow and Boss Energy were among the day’s biggest losers, slipping 15.8 per cent and 10.4 per cent, respectively.

The lowdown

It’s a sharp turnaround from the AI frenzy, which had boosted tech stocks in recent years on hopes that the investment pouring into the sector would remake the global economy and deliver gargantuan profits. The massive run-up in their share prices had sceptics warning that valuations had gone up too far, too fast.

DeepSeek’s unexpected emergence rocked AI-related stocks worldwide – Nvidia stocks plunged more than 17 per cent, and erased about $US600 billion ($955 billion) from the AI chipmaker, which had become the biggest company in the world in the past year. It marks the stock’s biggest drop since March 2020, and the biggest one-day loss by any company in US sharemarket history.

Betashares Senior Investment Strategist Cameron Gleeson said the reason tech stocks were more volatile and vulnerable was partly because they had “enjoyed such strong performance” recently.

“US tech has been priced for perfection, it’s performed very strongly on the expectations that their growth will continue to be very strong. There is a question mark over whether you’re going to see more of a violent sell-off, or if there might be a realignment in prices,” he said.

The emergence of DeepSeek “is potentially a good thing for an Australian software company who can then use AI more efficiently, and train models as part of their software solution,” Gleeson said.

On Wall Street overnight, the S&P 500 dropped 1.5 per cent, dragged down in large part by a 16.9 per cent fall for Nvidia. Other Big Tech stocks also took heavy losses, and they pulled the Nasdaq composite down 3.1 per cent. The damage was focused on AI-related stocks, while the rest of the market held up much better. The Dow Jones rose 0.7 per cent.

Quote of the day

“The US efforts to restrain China’s development of AI and other advanced technologies appear to have forced Chinese companies to develop innovative workarounds. Rather than throttling China’s ability to compete, the US may have stimulated Chinese innovation.”

Read Stephen Bartholomeusz’s comment on the Wall Street fallout over DeepSeek here.

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With AP

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