Market volatility and tech stock concerns

Good morning from the Financial Times. Today is Wednesday june twenty fourth, and this is your FT news briefing Venezuela is in more debt than we thought And investors are nervous about tech stocks again I think that investors are on tentter hooks Right, We've had a huge rally this year And so I think investors have been watching for any sign that a sellalth is about to start Plus, Nvidia's AI chips are a hot commodity on China's black market I'm Soniaa Hudson, and here's the news you need to start your day Venezuela is set to have the biggest debt restructuring on record The country is expected to reveal a two hundred forty billion dollars debt pile in the next few weeks, which is much higher than what the market had estimated That's according to people familiar with the plans Can the country win over its bondholders Here to tell us is the FT's U.S. finance editor, James Fontanicon. He broke this story. Hi, James. Hi there So let's just back up for a second. How did Venezuela get to this point Well, the wave and it's what I got here is that it was kind of cut out of the international markets under the authoritarian leadership of President Nicolas Maduro, who was removed by the US earlier this year And so during that period Venezorta, which has undergone an incredible contraction. And also for the longest time, we've never really known exactly how bad the situation was and Essentially now they're trying to restructure the country's debt and institutions This restructuring will allow it to re enter that international market. And what that means is They need to figure out how to avoid defaulting on the debt repayments that they need to make The country needs to sit down with its creditors and decide how are we going to like sort this out, mayaybe there's a way that I can pay you some money back and you can forgive some of the debt And so that you can then clear that de alt togetherher. Okay, so this is really fascinating. We have really not had a good look at Venezuela's economy and fiscal situation for years. and now we're kind of getting a window into it because of this debt restructuring that it's going through. What should people know about details of this plan so far So We've revealed that like Venezuela, together with the help of its advisor Centerview partartners, which is a New York investment bank will by the end of this month, be giving a macroeconomic framework and Some of the points in our reporting will tell us the economy has shrunk by about two thirds from twenty twelve, which is when Hugo Chavez, Madur's predecessor was in power So given that we know the debt power is going to be around two hundred forty billion, this is a debt to GDP ratio. of above two hundred percent How do you think that bondholders will respond to this move? How do you think the negotiations are going to go? Whenever you have a restructuring, it's never straightforward Obviously because nobody likes losing money. and so The bondholders are concerned about the kind of the haircut that they are going to suffer. potentially. And know given the det pile, which is bigger than expected, it's potentially that haircut might be also bigger than expected Some bondholders would like the International Monetary fund to be involved. That's kind of fairly common in other situations What we do know is that although Venzuela is not officially working with the IMF on this right now, it is kind of in consultation with them. And so it's possible that the IMF will at some point be involved. We don't have a clear answer on why The International Monetary Fund isn't involved at the moment What we can say is that for many years, Venezuela did not share any information with the IMF. So it's just started doing that again And so it might take the IMF some time to kind of get up to speed James Ultimately, what could this restructuring mean for Venezuela as a country? The successful restructuring of Venezuela will open the doors to foreign investors It will allow Venezuela to start planning on how to grow an economy that has been battered for years by the regime of Nicolas Maduro It will also kind of bring a level of hope and prosperity, I think for the region that has been missing for some time. and just kind of brringing Venezuela back into the international rule of law, mechanisms which it had been shunned out for many years James Fontanllicon is the FT's US. fininance editor. Thanks, James Thank you. US equities took a hit yesterday. The NASDAQ composite was down more than two percent and the SMP fell one point four percent Investors seem to be worried about how much tech companies have been spending on AI also concerned that U. S. interest rates could rise soon Kate Doogood is the FT's US Markets editor. She joins me now to talk more about this. Hi, Kate Hi All right, so which stocks suffered the most yesterday Yeah, so chip makers were among the hardest hit. compompanies like Micron and Qualcom which had been down sort of in the double digits early on Tuesday. You know, they have been among the most popular AI bets. And so it makes sense that as these AI worries are sort of percolating that they would be hit Yeah, remind us what exactly those concerns are So there are two worries at the moment with AI. One is that the spending by the sector has kind of been too aggressive and it's unclear whether or not they'll be able to generate the kind of returns that they've promised other thing is that higher interest rates make it more expensive for companies to borrow money These are all companies that have been borrowing extraordinary amounts of money in order to build out data centers, to build out AI infrastructure more generally. And if their borrowing costs are higher, that's also something that can eat into returns Okay, Kate, I feel like I'm getting a little bit of deja vu here. I mean, we've talked a lot on this show before about these fears that investors have been having What was behind yesterday's market route in particular So I think that we are still seeing the effects of last week's Fed meeting. Kevin Warsh, the new Fed chair, came out on Wednesday far more hawkish than expected, and the rest of the committee signaled that they were also expecting to see interest rates rise maybe once or twice this year And I think that that has coincided with these worries about AI And it's kind of created this perfect storm for the stock market. So investors still have a little bit of a Fed meeting hangover. I think so ye. What are these latest market moves telling us about investor sentiment right now? I think that investors are on tentter hooks Right, We've had a huge rally this year And we've had a huge rally despite things like the war in Iran. Despite the rise of inflation, you know, it's been a rally that's kind of defied the odds a little bit And so I think investors have been watching for any sign that a self is about to start, any sign of a correction The AI rally has been enormous. you know that has really driven the entire stock market And so any sign of like cracks or that these companies are not able to deliver sort of what they've been promising, they can deliver, I think is it really sets off a movement as soon as investors even get a whiff of that Kate Dooood is the FT's US Markets editor in New York. Thanks Kate. Thank you NVidia's AI chips have more than doubled in price on China's black market That's for two reasons In recent months, the US has cracked down on illicit exports, so there's less supply. And at the same time, Chinese companies really want them which means there's more demand too Now, the US began limiting China's access to semiconductor chips back in twenty twenty two But traders told the FT that supplies were particularly disrupted after US. authorities stepped up their investigations into illicit chips at the end of last year. authorities in Taiwan and Malaysia have also begun to investigate smugglers NvIidia said it does not provide any support or repairs for restricted products. and that it has, quote, repeatedly stopped would be smugglers But before we go, the briefing is thinking about launching a Saturday edition and we want your input. We're running a short five minute survey, and if you take it, you could be entered to win a pair of Bose' headphones. The link to that is in the show notes This has been your daily FT newews briefing. Check back tomorrow for the latest businessiness news.