Tech stocks slide in Europe and Asia as Wall Street sell-off goes global

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European and Asian semiconductor stocks tumbled on Thursday morning as a Wall Street sell-off went global, deepening the pullback for a sector that has led market gains this year.

The Stoxx Europe 600 Technology index lost 2.5 per cent in early trading, with Dutch chipmaking equipment manufacturer ASML, Europe’s largest tech company, down 1.8 per cent. Germany’s Infineon Technologies fell 5.5 per cent, BE Semiconductor lost 10 per cent and Switzerland-based semiconductor group STMicroelectronics fell 11 per cent.

The continent-wide Stoxx Europe 600 was down 1.3 per cent to its lowest level since May.

Japan’s Renesas and South Korea’s SK Hynix led a sharp “summer storm” drop in Asian stock markets, deepening a global slump in tech shares and following the heaviest one-day drop in the Nasdaq since 2022.

The sharp declines mark a reversal of the frenzy around tech stocks — and those associated with artificial intelligence in particular — that has contributed the bulk of equity gains this year. They also underscore the harsh punishment being meted out by investors to companies that fail to hit earnings targets.

“We’d seen such strong earnings reports coming into this season that the market was unprepared for bad news . . . Now we’re seeing indiscriminate selling,” said Emmanuel Cau, head of European equity strategy at Barclays, who added that thin summer liquidity may be exacerbating market moves. 

“Everyone’s on holiday, plus you have all this noise and angst around US politics and slowing growth in Europe and China,” Cau said. “Bad news is bad news again and earnings are no longer helping.”

Signs of a slowing US economy have stoked bets on rapid interest rate cuts this year, fuelling a rotation away from high-flying big tech groups and into unloved corners of the market such as smaller stocks.

Ahead of US GDP data later on Thursday, US Treasuries extended a recent rally driven by rate-cut hopes and clamour for safe assets. The US two-year yield, which falls as prices rise, was down 0.06 percentage points at 4.36 per cent, the lowest level since early February.

Alphabet fell 5 per cent on Wednesday after concerns over rising AI-related capex spending outweighed the company’s solid second-quarter earnings. The “response to a strong report underlined that optimism in markets over the outlook for tech has created a high hurdle for companies to clear”, said Mark Haefele, global wealth management chief investment officer at UBS.

In Seoul, shares of SK Hynix slid 8.9 per cent on Thursday, the biggest drop since March 2020, as investors took profits on concerns about its high valuation and the possibility of slowing AI investment by big tech groups.

The Topix index of Japanese stocks, which had rallied to an all-time high this month, fell 3 per cent, wiping out its gains for July and settling at a five-week low. South Korea’s Kospi index, which is heavily weighted towards tech stocks, fell 1.7 per cent.

The Japanese semiconductor bellwether Renesas dropped as much as 17 per cent — the shares’ biggest one-day plunge in more than 12 years — after disappointing market expectations on profits. Other Japanese semiconductor groups, including Advantest and Tokyo Electron, also fell sharply.

The abrupt retreat of the Topix in recent days coincides with the yen’s continuing surge against the US dollar and what currency traders say is now turning into a rushed exit from the so-called carry trade, in which speculators cheaply borrow yen to invest in higher-yielding assets elsewhere.

Since weakening to ¥161.6 against the dollar on July 10, the yen has strengthened just over 5.7 per cent to ¥152.26 on Thursday. Traders said part of the yen’s rapid reversal was driven by suspected currency intervention by the Japanese authorities this month. But rising expectations of a rate-cutting cycle in the US are now driving the yen even higher.

Masashi Akutsu, chief Japan equity strategist at Bank of America, described the recent combination of equity and currency volatility as a “summer storm”, with its centre in the US. Profit-taking on the large tech stocks had been a dominant theme, he said in a note to clients.

“While some of this rotation may be unwound in the future, it is unlikely to be completely reversed as long as Fed rate cuts are being anticipated,” he said.