(Reuters) -Equities saw their sharpest slide in seven months in Asia on Wednesday, with tech stocks leading losses as investors hit the brakes on a prolonged, artificial intelligence-driven rally.
The retreat from record highs was also fuelled by concerns that equity markets may be overstretched, following comments from the CEOs of Wall Street heavyweights Morgan Stanley and Goldman Sachs questioning the sustainability of lofty valuations.
MARKET REACTION: Nasdaq futures were down 1%, following a 2% fall in the cash index on Wall Street overnight and indexes in South Korea and Japan have dropped more than 5% from record highs touched on Tuesday. [MKTS/GLOB]
COMMENTS:
MATT SIMPSON, SENIOR MARKET ANALYST, STONEX, BRISBANE:
“When you consider the Nasdaq rallied for seven consecutive months and added more than 50% from its April low, the current selloff is a mere nudge in the grand scheme of things.
“At some point, profits need to be booked.
“But when momentum turns like it has for global markets, stops get triggered and force traders to liquidate in other markets to nurse losses – in turn prompting fresh bearish activity. Those with money on the line aren’t likely seeking answers right now – they’re just copying each other like kids in an exam. And the answer is to run.”
CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE:
“It’s a classic position-unwind and profit-taking day across Asia’s AI and semiconductor leaders after record highs. A wobble in U.S. big tech has dented sentiment across global growth and AI names, while a sharp crypto drawdown is tightening broader risk appetite, and a firmer yen is weighing on Japan’s export-heavy equities. Together, these forces are driving a healthy correction, which does not look like panic selling yet.”
JASON WONG, SENIOR MARKET STRATEGIST, BNZ, WELLINGTON:
“It’s probably just time to take pause on the equity market rally we’ve had. It’s been all one-way for a while, and it’s risk-off now pervading markets.
“Maybe the U.S. Fed last week was a bit of a wake-up call that the path to easier U.S. policy isn’t set in stone. We’re overdue for a bit of a correction.”
RYAN FELSMAN, CHIEF ECONOMIST, COMMSEC, SYDNEY:
“I think at the moment there’s a bit of profit-taking going on. There’s uncertainty around the U.S. government – we’re now into the 35th day of the federal government shutdown. There are concerns we could see higher bond yields with the U.S. government eventually reopening, and higher bond yields often translates into those growth and rate-sensitive type stocks such as technology coming under some pressure.
“Clearly, the tech sector is priced to perfection at the moment. It’s expensive and certainly investors are a little bit concerned that the market’s run a bit too hard.”
SHIER LEE LIM, LEAD FX AND MACRO STRATEGIST APAC, CONVERA, SINGAPORE:
“The lack of a single clear catalyst suggests that investor caution is being driven by a combination of macroeconomic uncertainties, including concerns about growth prospects, ongoing government shutdown negotiations in the U.S., and heightened scrutiny of capital expenditure in key industries.”
TONY SYCAMORE, MARKET ANALYST, IG, SYDNEY:
“I think this is the start of the move … it’s probably six or seven reasons combined that have started this risk-aversion selloff.
“The rally has been relentless from the April lows and combined with the CEOs warning of a correction and Michael Burry of the Big Short saying he bought downside in Nvidia and Palantir and then the (U.S) government shutdown now in the record territory – there’s so many reasons now for this to sort of continue lower.”
JON WITHAAR, SENIOR PORTFOLIO MANAGER, PICTET ASSET MANAGEMENT, SINGAPORE:
“It’s a confluence of things but I think it comes down to positioning. Retail investors and hedge funds have been extremely exposed on the long side to technology stocks in particular globally and a combination of some negative CEO comments on valuation overnight combined with the violent downward move in crypto has damaged sentiment.
“The selloff appears to be largely positioning-driven, with recent outperforming names taking the worst of the move. In Asia, this includes names such as SoftBank and SK Hynix. Yesterday’s “investment caution” on SK Hynix was certainly something that spooked retail and institutional investors.”
ORIANO LIZZA, SALES TRADER, CMC MARKETS, SINGAPORE:
“Why the market’s off – I think it’s probably a little bit overdue … We were talking about overstretched valuations, and I think they’re coming to the fore now. Also, I think the market’s always forward-looking, so they’re looking to see if there’s necessarily any other catalysts that are going to maintain this market momentum.
“In the short term, I guess how the market reacts following a selloff like this … This particular time, it’s actually, a little bit more interestingly, across the board … This is the first time that we’ve seen a broader market selloff, which has been sort of, I guess, asset agnostic. Normally it’s sort of one market, but this one seems to be – the index markets have triggered a broader selloff and that’s probably that fear sentiment that is slowly starting to creep in.”
LORRAINE TAN, DIRECTOR OF EQUITY RESEARCH FOR ASIA, MORNINGSTAR, SINGAPORE:
“The market likely reflects overnight U.S. selloff on worries over consumption and consumer confidence. Additionally, it could also be attributed to AI-related companies being priced to perfection.”
THOMAS MATHEWS, HEAD OF MARKETS FOR ASIA PACIFIC, CAPITAL ECONOMICS, WELLINGTON:
“It does seem like a straight-forward response to the tech wobble in the U.S. yesterday … The tech-heavy Asian indexes, especially Korea, had all fared especially well lately, so perhaps they have a bit more to lose if sentiment turns.
“The key question is whether that continues to happen if the U.S. tech selloff gathers steam. I doubt it: Asian valuations are still low when compared with the U.S., which might limit the downside if a big global selloff were to eventuate.”
(Reporting by Reuters’ Asia markets team in Singapore, Sydney, Shanghai and Tokyo; Editing by Sherry Jacob-Phillips)
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