Global tech stocks sink as sell-off spreads to Europe and Asia

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Global semiconductor stocks sank on Thursday as a Wall Street sell-off spread to Europe and Asia, deepening the pullback for a sector that has led market gains this year.

The Nasdaq Composite fell 0.5 per cent shortly after the opening bell in New York, with shares in Nvidia down 2 per cent and Arm Holdings off 5.4 per cent. The moves come after the tech-heavy index suffered its worst day in 18 months on Wednesday, falling 3.6 per cent.

European and Asian tech stocks were hit with steeper declines. The Stoxx Europe 600 Technology index lost 2.7 per cent by early afternoon, with Dutch chipmaking equipment manufacturer ASML, Europe’s largest tech company, down 3.3 per cent.

The sharp declines around the world mark a reversal of the frenzy around tech stocks — and those associated with artificial intelligence in particular — that has contributed the bulk of equity gains this year. They also underscore the harsh punishment being meted out by investors to companies that fail to hit earnings targets.

“We’d seen such strong earnings reports coming into this season that the market was unprepared for bad news . . . Now we’re seeing indiscriminate selling,” said Emmanuel Cau, head of European equity strategy at Barclays, who added that thin summer liquidity may be exacerbating market moves. 

“Everyone’s on holiday, plus you have all this noise and angst around US politics and slowing growth in Europe and China,” Cau added. “Bad news is bad news again and earnings are no longer helping.”

Expectations that the Federal Reserve will soon lower borrowing costs have triggered a rotation away from high-flying big tech companies and into unloved corners of the market such as smaller stocks.

US Treasuries extended a recent rally driven by rate-cut hopes and clamour for safe assets. The US two-year yield, which falls as prices rise, was down 0.06 percentage points at 4.36 per cent, the lowest level since early February. It picked up to 4.4 per cent following data showing the US economy grew at an annualised pace of 2.8 per cent in the second quarter.

Alphabet fell 5 per cent on Wednesday after concerns over rising AI-related capex spending outweighed the company’s solid second-quarter earnings.

The “response to a strong report underlined that optimism in markets over the outlook for tech has created a high hurdle for companies to clear”, said Mark Haefele, global wealth management chief investment officer at UBS.

Germany’s Infineon Technologies fell 5.7 per cent on Thursday, BE Semiconductor lost 12.6 per cent and Switzerland-based semiconductor group STMicroelectronics dropped 14.2 per cent. The continent-wide Stoxx Europe 600 was down 0.9 per cent to its lowest level since May.

In Seoul, shares of SK Hynix slid 8.9 per cent, the biggest drop since March 2020, as investors took profits on concerns about its high valuation and the possibility of slowing AI investment by big tech groups.

The Topix index of Japanese stocks, which had rallied to an all-time high this month, fell 3 per cent, wiping out its gains for July and settling at a five-week low. South Korea’s Kospi index, which is heavily weighted towards tech stocks, fell 1.7 per cent.

The Japanese semiconductor bellwether Renesas dropped 14 per cent — the shares’ biggest full-day retreat since March 2019 — after disappointing market expectations on profits. Other Japanese semiconductor groups, including Advantest and Tokyo Electron, also fell sharply.

The abrupt retreat of the Topix in recent days coincides with the yen’s continuing surge against the US dollar and what currency traders say is now turning into a rushed exit from the so-called carry trade, in which speculators cheaply borrow yen to invest in higher-yielding assets elsewhere.

Since weakening to ¥161.6 against the dollar on July 10, the yen had strengthened just under 5.7 per cent to ¥152.53 on Thursday. The currency weakened to ¥153.86 after the stronger than forecast US GDP figures.

Traders said part of the yen’s rapid reversal was driven by suspected currency intervention by the Japanese authorities this month. But rising expectations of a rate-cutting cycle in the US are now driving the yen even higher.

Masashi Akutsu, chief Japan equity strategist at Bank of America, described the recent combination of equity and currency volatility as a “summer storm”, with its centre in the US. Profit-taking on the large tech stocks had been a dominant theme, he said in a note to clients.

“While some of this rotation may be unwound in the future, it is unlikely to be completely reversed as long as Fed rate cuts are being anticipated,” he said.