Global tech sell-off deepens as Chinese index sinks 30% from high

Losses in TSMC and Samsung Electronics helped send MSCI's gauge of Asian tech stocks to its biggest drop since Feb 26. PHOTO: REUTERS

SEOUL (BLOOMBERG) - The worldwide slump in technology stocks deepened on Tuesday (May 11) , with investor angst over inflation and stretched valuations adding to fresh signs of regulatory scrutiny in China.

Losses in Taiwan Semiconductor Manufacturing Co (TSMC) and Samsung Electronics helped send MSCI's gauge of Asian tech stocks to its biggest drop since Feb 26, while futures on the Nasdaq 100 slumped in Asia after the underlying index's 2.6 per cent slide on Monday.

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. Meituan drove declines after the Chinese e-commerce giant's business practices were criticised by an influential consumer advocacy group, just days after the company's chief executive shared and then deleted a poem on social media that some interpreted as a veiled criticism of Beijing.

Global technology stocks benefited from lower interest rates and emerged as investor favorites last year, when the pandemic stoked demand for online services.

Now, concern is mounting that commodity-fuelled 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.

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 IG Asia market strategist Yeap Jun Rong. "Concerns of higher inflation may weigh on growth stocks, considering that much of their value may come from future earnings."

Broader market

Tuesday's tech rout weighed heavily on the broader equity market, with the MSCI Asia Pacific Index slipping about 2 per cent, headed for its lowest close since March 31. Tokyo's benchmark Nikkei index closed down 3.08 per cent as tech shares were hit by selling pressure.+

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 strategist Shogo Maekawa at JPMorgan Asset Management in Tokyo. "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."

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's stock plunged as much as 8.6 per cent in early Tuesday trading, taking the slump over two days to 15 per cent after the Shanghai Consumer Council released criticism late Monday on issues that hurt consumer rights.

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