Asia-Pacific stocks fall following last week’s route on Wall Street

Tech shares led a sharp decline across global stock markets on Monday as expectations mounted that the Federal Reserve will need to rapidly unwind stimulus measures that have fuelled a surge in equities over the past two years.

The US S&P 500 fell 3 per cent by midday in New York as a sell-off accelerated and stretched into its fourth week. The blue-chip index, which last week suffered its biggest losses since the pandemic rocked global financial markets in March 2020, is now more than 10 per cent below an all-time high hit this month, known as a correction. Roughly 175 of the stocks in the index are now down more than 20 per cent from recent highs.

Air has been bursting out of speculative parts of the market all month, and the heavy selling continued on Monday. The price of bitcoin slid another 9 per cent, with the cryptocurrency now having halved in value during the past two and a half months. Cathie Wood’s flagship Ark fund, which has large holdings in Tesla and Coinbase, fell 8 per cent on Monday. The fund is down 59 per cent from its all-time high.

Shares in the US’s tech behemoths were among the hardest hit on Wall Street, pushing the Nasdaq Composite 3.5 per cent lower.

The fall took the Nasdaq’s drop to more than 17 per cent from an all-time high struck in November, with the declines nearing a so-called bear market — when losses breach 20 per cent. Already, 70 per cent of the more than 3,600 stocks in the index are down that much or more.

Many of the shares that led markets higher after the depths of the coronavirus crisis in early 2020 have pulled back sharply in recent weeks, and were hit with a fresh bout of selling on Monday. Electric carmaker Tesla and chipmaker Nvidia each fell about 8 per cent on Monday.

Investors are focused on the prospect of the Fed turning more hawkish at its rate-setting meeting this week to tame surging inflation.

Goldman Sachs said at the weekend it expected the Fed to signal that it would begin raising interest rates from historic lows in March. The Wall Street bank also warned clients of a “risk that the Federal Open Market Committee will want to take some tightening action at every meeting until [the inflation] picture changes” and that it could increase rates more than four times this year.

Futures markets have priced in the world’s most influential central bank raising its benchmark interest rate to more than 1 per cent by December, after tethering it close to zero since March 2020.

While higher interest rates raise borrowing costs for all businesses, they also make companies’ projected profits worth less in investors’ valuation models, with the effect magnified for tech and other growth companies whose peak earnings are not expected for years to come.

Technology shares were high flyers during the pandemic era because of a widely held view that social restrictions had sped up the advancement of social trends such as online shopping, remote working and gaming.

But speculative tech stocks had achieved “valuations [that] don’t make sense in any investment environment”, Morgan Stanley strategist Michael Wilson said in note to clients, and were not falling “just because the Fed is pivoting”.

In the US, an index of unprofitable tech stocks collated by Goldman has lost about a fifth of its value this year. The Tokyo Stock Exchange’s Mothers market for high-growth start-ups has dropped about 18 per cent.

In Europe, the Stoxx Europe 600 regional share index fell 3.8 per cent to its lowest level since October. Its tech sub-index dropped 5.8 per cent, its steepest daily decline since October 2020 and taking its loss so far in January to more than 13 per cent.

South Korea’s tech-heavy Kospi index fell 1.5 per cent and Hong Kong’s Hang Seng Tech index dropped 2.8 per cent.

The Vix, Wall Street’s so-called fear gauge that measures expected volatility on the blue-chip S&P 500 share index, rose to 35.2 points — its highest since January 2021, when the meme-stock craze rocked Wall Street.