Global equities slipped to a two-week low yesterday as a sell-off on Wall Street led by technology and biotech shares and triggered by concerns that valuations are over stretched spread to Asia and Europe.
The MSCI All-Country World index fell 0.5 percent by 1024 GMT to a two-week low, while the MSCI Europe index dropped 1.2 percent, while the STOXX Europe 600 index was down 1.3 percent.
That followed a 3.1 percent slide in the tech-heavy US NASDAQ on Thursday and a 2.4 percent drop in Japan’s Nikkei Average yesterday, the biggest weekly fall since the March 2011 tsunami and nuclear disaster.
Elsewhere in Asia, Taipei fell 0.45 percent, or 40.05 points, to 8,908.05, Seoul lost 0.56 percent, Sydney shed 0.95 percent, Shanghai slid 0.18 percent and Hong Kong fell 0.79 percent.
What increasingly looks like a major portfolio shift from momentum plays in US technology and biotechnology stocks was having a knock-on effect across all regions and sectors.
Momentum investing involves buying stocks that are already trending higher, often taking their price/earnings ratios into the stratosphere. When the momentum turns, prices can fall rapidly as investors rush to the exits.
“The sell-off is the result of increasing concerns about the future earnings growth,” said Christian Stocker, equity strategist at UniCredit in Munich. “Valuations are high compared to previous years and the trend of earnings estimates is very muted in the US and almost flat in Europe.”
Technology stocks led the retreat in Europe, with the sector index, following its US counterpart, down 1.9 percent on growing fears the shares have risen too far, too fast and are now relatively expensive compared with the broader market. The European healthcare index was down 1.4 percent.
The STOXX Europe 600 Technology index, which surged nearly 50 percent in two years to the end of December last year, is down 3 percent so far this year.
According to Thomson Reuters Datastream, the tech sector is the most expensive in Europe, trading at 19 times its 12-month forward earnings, against a 10-year average of about 16 times, and 14 times for the broader STOXX 600 index.
“It’s a pre-Easter, pre-earnings season correction and represents an opportunity to invest in the value part of the stock market as the cyclical shares suffer from past hype,” said Didier Duret, global chief investment officer at ABN-AMRO Private Banking.