Tech tremors spread to financials to spoil global rally

LONDON: Tremors in technology stocks spread to Europe and were set to dent US trading with weaker metals prices and flagging financials also tripping up a rally that had taken world equities to record highs.

Investors concerned about high valuations took the top off the tech sector, where stocks such as Facebook, Alphabet , Tencent and Alibaba have reached prices some describe as “eye-watering”.

Europe’s main index of stocks tumbled 0.7%, dragged lower by chipmakers which have been a crucial driver of growth in the sector and seen stellar price gains this year.

US stocks were set to open lower, with S&P and Dow Jones futures falling 0.1% to 0.2% while futures of the tech-heavy Nasdaq were down 0.5%.

Ken Hsia, European equities portfolio manager at Investec Asset Management, said he had shifted this year from tech into other sectors, including financials, which he thought would gain from higher yields and fiscal stimuli such as US tax cuts.

“Their valuations needed something more heroic in terms of the earnings growth they were reporting, and we sold some and rotated that into other parts of the market,” he said.

Another negative for the tech sector was a detail of the US tax cut bill being debated in Congress that would limit the scope of tax credits that are key for research and development.

But bank stocks were the biggest drag on Europe’s STOXX 600 yesterday as they also slipped back after gaining strongly in the last week on the tax cut plan, as analysts raised concerns that European lenders will benefit less than US peers.

MSCI’s world equity index, which tracks shares in 47 countries, slipped 0.4%, on track for its worst fall in three weeks.

US market volatility rose again in early trading, its eighth day of gains in the last 10 as investors grew more jittery about stock markets driven to pricey levels by optimism about the economy.