Asian stock markets experienced an early sell-off on Wednesday before staging a recovery, with concerns over the earnings outlook for technology companies driving the volatility index for South Korean shares to a historic peak.

The benchmark Kospi index fell as much as 1.5% during the session before closing with a gain of 3.9%.

Shares of major chipmakers, which hold significant weight in the index, saw dramatic swings. Samsung Electronics Co Ltd shares dropped up to 3.2% intraday before finishing more than 8% higher, while SK Hynix Inc shares plunged as much as 4.5% before ending the day 1% up.

The sell-off in the U.S. artificial intelligence sector, partly driven by fears of further interest rate hikes by the Federal Reserve, preceded the Asian session.

During Asian trading, S&P 500 and Nasdaq 100 index futures were largely flat. The yield on the 10-year U.S. Treasury note held steady at 4.49%, and the U.S. dollar edged up 0.1% against a basket of major currencies.

In the U.S. market on Tuesday, NVIDIA Corp shares fell over 4%, while Intel Corp and Micron Technology Inc shares dropped 6.1% and 13.2%, respectively.

The volatility index for the Kospi reached an all-time high, with market swings amplified by the popularity of single-stock leveraged exchange-traded funds among retail investors.

A senior investment specialist noted that such single-stock leveraged ETFs only serve to intensify market volatility.

South Korea launched leveraged ETFs tied to popular individual stocks like Samsung and SK Hynix in late May. The head of the country's Financial Supervisory Service expressed regret on Monday over the hasty launch of these products, describing the process as "rushed."

The specialist also commented that while the Federal Reserve held rates steady last week, new Chair Kevin Warsh, in his first policy meeting, abandoned the central bank's long-standing bias towards cutting interest rates.

A key concern for investors is that U.S. AI companies may soon deplete their free cash flow, making them increasingly reliant on the bond market to fund their substantial capital expenditure plans.

This type of financing directly links a company's cost of capital to fluctuations in U.S. interest rates and the Treasury market.

The specialist added that markets may begin to worry about the impact of Fed rate hikes on the capital spending plans of major U.S. cloud service providers.