(Reuters) -Stocks fell on Wednesday as a selloff in global tech shares dragged down markets from Tokyo to Frankfurt, driving volatility to highs last seen in April and helping underpin haven assets such as government bonds.
Equities saw their sharpest slide in seven months in Asia on Wednesday, with tech stocks leading losses as investors hit the brakes on a prolonged, artificial intelligence-driven rally.
The retreat from record highs was also fuelled by concerns that equity markets may be overstretched, following comments from the CEOs of Wall Street heavyweights Morgan Stanley and Goldman Sachs questioning the sustainability of lofty valuations.
MARKET REACTION: Nasdaq futures were down 0.3%, following a 2% fall in the cash index on Wall Street overnight and indexes in South Korea and Japan dropped heavily from record highs touched on Tuesday.
In Europe, tech was the worst-performing sector of the STOXX 600, which dropped 0.3% on the day [MKTS/GLOB]
COMMENTS:
HERALD VAN DER LINDE, HEAD OF EQUITY STRATEGY, ASIA PACIFIC, HSBC, HONG KONG
“What we’ve seen in the market is a massive rally up to very high valuations. The problem with high valuations is that it’s like blue sky. The moment there’s one small black cloud, it is not a blue sky anymore. So if you have very high valuations, small news, shifts in sentiment can actually cause markets to come down a lot.
“So people are up to their noses in these AI stocks. And it might well be that they’re warranted. That this is fine. But how much further can they go? How much more can they buy? And my belief is that what we’re going to see is a breather…and the breather could come with a rotation.
“There was no news flow. Actually, on the day of the peak, nothing happened. Sometimes it’s a gradual shift in markets, which are difficult to predict, whereby an increasing number of people say, well, I’m well positioned, it’s closer to year end, maybe I’ll take some money off the table. And the second one says so. And the third one. And the fourth one says, hey, these three are selling. I might maybe be selling as well, right? So it’s a shift in the sort of market sentiment that has its own sort of dynamic. That might well be unfolding a little bit now.”
VASU MENON, MANAGING DIRECTOR OF INVESTMENT STRATEGY, OCBC, SINGAPORE:
“Concerns about equity market valuations, especially after tech and AI stocks which have done exceptionally well this year, is causing nervousness and market volatility as investors are fearful of a sharp pullback after strong year-to-date gains.
“Valuations are no doubt less compelling than they were six months ago, but we remain sanguine about the medium-term investment outlook even though markets may run into greater volatility in the short term. Liquidity remains a supporting factors for markets, with US money market funds standing at a record high of US$7.4 trillion currently. History shows that markets continue to rise when the Fed cuts rates in a non-recessionary environment, and at this juncture we do not anticipate a US recession.”
EMMA WALL, CHIEF INVESTMENT STRATEGIST, HARGREAVES LANSDOWN, LONDON:
“Halloween may be over, but markets are feeling spooked over AI stock valuations fears. The concerns are valid. While a number of AI firms have benefits from strong revenue and profit growth, this has been a narrow and extreme rally. Earlier this year, following both the DeepSeek disruption in January and the tariff tantrum in April, returns seemed to be more broad-based, with the equal weighted S&P 500 outperforming the market cap for periods. But this did not last, and once again high growth, tech biased, AI focused businesses have delivered much of the aggregate S&P 500 returns over the past six months.”
MATT SIMPSON, SENIOR MARKET ANALYST, STONEX, BRISBANE:
“When you consider the Nasdaq rallied for seven consecutive months and added more than 50% from its April low, the current selloff is a mere nudge in the grand scheme of things.
“At some point, profits need to be booked.
“But when momentum turns like it has for global markets, stops get triggered and force traders to liquidate in other markets to nurse losses – in turn prompting fresh bearish activity. Those with money on the line aren’t likely seeking answers right now – they’re just copying each other like kids in an exam. And the answer is to run.”
CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE:
“It’s a classic position-unwind and profit-taking day across Asia’s AI and semiconductor leaders after record highs. A wobble in U.S. big tech has dented sentiment across global growth and AI names, while a sharp crypto drawdown is tightening broader risk appetite, and a firmer yen is weighing on Japan’s export-heavy equities. Together, these forces are driving a healthy correction, which does not look like panic selling yet.”
JASON WONG, SENIOR MARKET STRATEGIST, BNZ, WELLINGTON:
“It’s probably just time to take pause on the equity market rally we’ve had. It’s been all one-way for a while, and it’s risk-off now pervading markets.
“Maybe the U.S. Fed last week was a bit of a wake-up call that the path to easier U.S. policy isn’t set in stone. We’re overdue for a bit of a correction.”
TONY SYCAMORE, MARKET ANALYST, IG, SYDNEY:
“I think this is the start of the move … it’s probably six or seven reasons combined that have started this risk-aversion selloff.
“The rally has been relentless from the April lows and combined with the CEOs warning of a correction and Michael Burry of the Big Short saying he bought downside in Nvidia and Palantir and then the (U.S) government shutdown now in the record territory – there’s so many reasons now for this to sort of continue lower.”
JON WITHAAR, SENIOR PORTFOLIO MANAGER, PICTET ASSET MANAGEMENT, SINGAPORE:
“It’s a confluence of things but I think it comes down to positioning. Retail investors and hedge funds have been extremely exposed on the long side to technology stocks in particular globally and a combination of some negative CEO comments on valuation overnight combined with the violent downward move in crypto has damaged sentiment.
“The selloff appears to be largely positioning-driven, with recent outperforming names taking the worst of the move. In Asia, this includes names such as SoftBank and SK Hynix. Yesterday’s “investment caution” on SK Hynix was certainly something that spooked retail and institutional investors.”
ORIANO LIZZA, SALES TRADER, CMC MARKETS, SINGAPORE:
“Why the market’s off – I think it’s probably a little bit overdue … We were talking about overstretched valuations, and I think they’re coming to the fore now. Also, I think the market’s always forward-looking, so they’re looking to see if there’s necessarily any other catalysts that are going to maintain this market momentum.
“In the short term, I guess how the market reacts following a selloff like this … This particular time, it’s actually, a little bit more interestingly, across the board … This is the first time that we’ve seen a broader market selloff, which has been sort of, I guess, asset agnostic. Normally it’s sort of one market, but this one seems to be – the index markets have triggered a broader selloff and that’s probably that fear sentiment that is slowly starting to creep in.”
(Reporting by Reuters’ Asia markets team in Singapore, Bengaluru, Sydney, Shanghai and Tokyo; Editing by Vidya Ranganathan and Sherry Jacob-Phillips)
