High-flying Asian markets exposed after US tech rout

Technology giant Tencent Holdings, the biggest firm by market value on the Hong Kong gauge, fell 2.5 per cent yesterday, tracking last Friday's tech sell-off in the US.
Technology giant Tencent Holdings, the biggest firm by market value on the Hong Kong gauge, fell 2.5 per cent yesterday, tracking last Friday's tech sell-off in the US.PHOTO: REUTERS

S. Korea, Taiwan and HK 'most vulnerable' due to dependence on sector for gains

HONG KONG • A sell-off in US technology stocks foreshadows potential vulnerability in some of Asia's biggest stock markets, which have been just as dependent on the sector for gains this year.

The strain showed yesterday as the Hang Seng and Kospi indexes both slid at least 1 per cent. Technology giant Tencent Holdings, the biggest firm by market value on the Hong Kong gauge, fell 2.5 per cent, while Samsung Electronics tumbled 1.6 per cent in Seoul. Taiwan Semiconductor Manufacturing shed 2.1 per cent, the most since December, leading wider losses on the island's bourse.

"Tech has been on a pretty meteoric rise year-to-date and frankly has hardly had any sort of correction," said Mr Andrew Cole, a senior investment manager with Pictet Asset Management, which manages about US$172 billion (S$238 billion) according to its website.

"A correction strikes me as a very natural occurrence and inevitably hits the Nasdaq and it will have some spillover."

Last Friday's sell-off saw the US technology giants known collectively as Fang - Facebook, Amazon.com, Netflix and Google parent Alphabet - slump at least 3.2 per cent. The decline appeared to be triggered by a note from Goldman Sachs' global chief investment officer Robert Boroujerdi, who warned that low volatility may be blinding investors to risks.

Short-seller Andrew Left of Citron Research also tweeted about "frenzied casino action" in graphics chip-maker Nvidia Corp.

CORRECTION IS ONLY NATURAL

Tech has been on a pretty meteoric rise year-to-date and frankly has hardly had any sort of correction. A correction strikes me as a very natural occurrence and inevitably hits the Nasdaq and it will have some spillover.

MR ANDREW COLE, a senior investment manager with Pictet Asset Management, which manages about US$172 billion (S$238 billion) according to its website.

Hong Kong, South Korea and Taiwan seem the most vulnerable to the US technology contagion.

Information technology stocks are the second-largest group on the Hang Seng Index after financials. While both Tencent and HSBC Holdings account for a 10 per cent weight each, Tencent's market value of more than US$330 billion is almost twice that of the bank. Tencent shares are up 42 per cent this year, compared with the Hang Seng's 17 per cent advance.

In South Korea, the almost US$270-billion Samsung Electronics makes up a fifth of the Kospi. It is nearly 10 times larger than electronics components maker SK Hynix. Samsung has also outperformed this year, rising 26 per cent versus the benchmark's 16 per cent climb.

Taiwan Semiconductor makes up 18 per cent of the island's benchmark. Its stock, which has risen for eight straight years, is up 15 per cent this year, beating the 9.5 per cent rise in the Taiwan index.

The chipmaker and its peers, including MediaTek and Advanced Semiconductor Engineering, have recently begun tracking Apple again after underperforming for much of this year, further underlining the correlation between markets.

Mr Cole said his multi-asset team's exposure to technology stocks is largely in robotics and the digital economy, including significant US exposure. He may add some positions on weakness. "Is it the end of the bull run this year? Time will tell but my guess is no," he said.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on June 13, 2017, with the headline 'High-flying Asian markets exposed after US tech rout'. Print Edition | Subscribe