New York: The worldwide slump in tech stocks has deepened, with investor angst over inflation and stretched valuations adding to fresh signs of regulatory scrutiny in China. Futures on the Nasdaq 100 tumbled 1.3 per cent after the underlying index's 2.6 per cent slide on Monday, while Europe's Stoxx 600 Technology Index dropped as much as 2.5 per cent, led lower by semiconductor makers and pandemic winners.
In Asia, losses in Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. helped send MSCI Inc.'s gauge of Asian tech stocks to its biggest drop since February 26, while the Hang Seng Tech Index sank as much as 4.5 per cent, extending its tumble from a February high to about 30 per cent.
After tech stocks benefited from lower interest rates and emerged as investor favorites last year, concern is mounting that commodity-fueled inflation will prompt central banks to tighten monetary policy, denting the appeal of stocks whose valuations often hinge on earnings prospects far into the future.
"It's as if many investors have woken up and realized that inflation is real and isn't transitory," said Neil Campling, an analyst at Mirabaud Securities. "The problem for tech is that it has been seen as a one-way ticket for the last decade - offering a glimmer of growth in a no-growth/low growth world," he said.
With the Nasdaq 100 still trading within 5 per cent of its all-time high last month, some market participants see a good window to take profits. Investors "continue to place their focus on the inflation narrative, with rising commodities prices and chip shortages in play," said Yeap Jun Rong, a market strategist at IG Asia Pte. "Concerns of higher inflation may weigh on growth stocks, considering that much of their value may come from future earnings."
Drag down broader market
Tuesday's tech rout weighed heavily on the broader equity market, with Europe's benchmark Stoxx 600 Index falling as much as 2.1 per cent, and the MSCI Asia-Pacific Index slipping 2 per cent and closing at its lowest since March 31. MSCI's broadest measure of world equities fell for a second day. That's after hitting another record just last week after surprisingly weak US jobs data eased some fears about inflation and a cutback in stimulus.
"Investors' tendency to look at just the good side of things is quickly fading," said Shogo Maekawa, a strategist at JPMorgan Asset Management. "People were inclined to buy technology stocks even after weak US jobs data on the view that any exit in monetary policies is far away. But now, a deep-rooted concern over inflation is leading to declines in technology stocks."
Crackdown in China
In Asia, Chinese tech giants have borne the brunt of the sector's retreat this month, after regulators expanded an antitrust crackdown and announced steps to rein in the companies' fast-growing finance units.
Meituan stock plunged as much as 8.7 per cent on Tuesday, taking the slump over two days to 15 per cent, after the Chinese e-commerce giant's business practices were criticized by an influential consumer advocacy group, just days after the company's CEO shared and then deleted a poem on social media that some interpreted as a veiled criticism of Beijing.
Herald van der Linde, HSBC Holdings head of Asia-Pacific equity strategy, says they turned neutral on China's internet sector in November arguing that this might be the "single biggest issue" in 2021. "Sometimes, Asian stock markets get carried away by what we can call 'big market delusions' - they believe that growth in sectors will continue," he said. "But then, these stocks can turn suddenly and de-rate even while growth remains strong."