Global market sell-off spreads to Europe

A sharp Wall Street sell-off has sent tremors throughout global equity markets, pulling down Asian and European stocks on Thursday as worries over the end of years of cheap money and an escalating US-China trade war darkened investor sentiment.

Technology shares, which led the rout during Wednesday’s New York trading day, were also hit hard internationally, with the Stoxx technology index down 1.7 per cent after falling nearly 3 per cent earlier in the day.

Taiwan’s bourse, which is heavy in electronics and semiconductors, closed down 6.3 per cent, one of its biggest one-day losses, while Chinese online powerhouse Tencent lost almost 7 per cent in Hong Kong. Chipmakers also led the losses in Europe, with Austria’s AMS falling almost 4 per cent and ASML of the Netherlands down more than 2 per cent.

The Europe-wide Stoxx 600 fell to its lowest level since February 2017, down almost 2 per cent in early trading.

Investors have been willing to pay a premium for tech stocks during much of the recent bull market amid continuing uncertainty over the global economy. But continued robustness of the US economy has taken the shine off their shares.

Rising US Treasury yields have also raised the prospect of higher borrowing costs across the corporate world, particularly if the US Federal Reserve is forced to raise rates more quickly than anticipated.

Analysts and traders said the moves were a reaction to the rising bond yields following the Fed’s rate increase last week and strong US economic data. US President Donald Trump blamed Fed tightening for the sharp drop in equities: “The Fed is making a mistake. They’re so tight. I think the Fed has gone crazy,” he said on Wednesday.

Japan’s Topix index fell 3.5 per cent, its largest one-day fall since March, with technology companies losing 4 per cent. Companies listed in China slumped by 4 per cent. In Hong Kong, stocks also tumbled 3.8 per cent. Futures trade pointed to falls of 1.7 per cent for Frankfurt’s Xetra Dax 30 and 1.3 per cent for the FTSE 100 in London.

The sell-off was broader than just technology. Trade tensions were also rattling investors, with the Stoxx index tracking carmakers down by more than 2.5 per cent and the index following miners was down 2 per cent. Chinese stocks dropped sharply in a broad-based sell-off, with brokerages and property developers suffering the steepest falls.

US futures anticipated further losses at the start of Thursday’s Wall Street trading day, predicting the Nasdaq Composite would open down a further 0.8 per cent, with the S&P 500 expected to fall 0.7 per cent.

The gobal sell-off was triggered by the biggest fall in US stocks for more than eight months on Wednesday as investors suddenly rushed to sell over-valued stocks, particularly in the frothy technology sector.

“Rising rates have fuelled concerns that the economy has entered the latter stages of the business cycle and thus growth will slow,” said Mark Haefele, global chief investment officer at UBS Wealth Management.

“With third-quarter earnings season about to start . . . the focus will be on company guidance.”

The tech-heavy Nasdaq Composite dropped more than 4 per cent, its biggest one-day decline since June 2016, while the S&P 500 fell 3.3 per cent on its worst day since February. The benchmark index has fallen five days in a row — the longest losing streak of Mr Trump’s presidency.

Investors US Treasuries firmed amid increased risk aversion, with the yield on the benchmark 10-year US Treasuries down 7.3 basis point to 3.1517 per cent. However, analysts said this month’s spike in US Treasury yields has called into question the high valuations put on tech stocks during the bull market that began in 2009.

“This is much more interest-rate related than anything going on specifically with tech,” said Ari Shrage, chief executive of Aliya Capital. “Interest rates are moving higher, so stocks that are the most expensive typically are the ones that roll over.”

Rising interest rates can hit shares as they increase the debt burden of companies and can slow economic activity more broadly. Higher rates can also make investment in bonds more attractive relative to equities.

Analysts said recent simultaneous falls in stocks and bond prices also helped disrupt algorithmic trades that are common on Wall Street.

Ben Luk, global macro strategist at State Street Global Markets, said the global stock sell-off was mostly the result of “the market getting more concerned over the Fed’s normalisation rate path given the strength of the US economy and pending inflationary pressures”.

Paras Anand, head of asset management for Asia Pacific at Fidelity International, said the risk-off mentality in particular had an impact on parts of the market “where uncertainty is high”.

“It was much more about people taking profits than a panic,” said JJ Kinahan, chief market strategist at TD Ameritrade.

Uncertainty looms over global emerging markets, which have suffered this year with fears of contagion from Turkey and Argentina, blighted by their economic troubles and weak currencies.

China has come under pressure from the trade war with the US and its falling currency is nearing Rmb7 against the greenback, a threshold that would mark its weakest level in a decade.

“We need to exercise caution outside of the US,” said Talib Sheikh, a fund manager at Jupiter Asset Management. “The events in Turkey and Argentina point to the consequence of the draining of the global economy’s excess liquidity sparked by the US Federal Reserve raising interest rates and starting quantitative tightening.”

“With the US economy likely to remain buoyant in the near future, emerging markets may experience further pain as the US dollar continues to rise and the cost of repaying dollar-denominated debt rises with it.”

Additional reporting by Hudson Lockett and Alice Woodhouse in Hong Kong, and Nicole Bullock, Joe Rennison and Peter Wells in New York

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