WORLD EQUITIES HIT 2-WEEK LOW
MSCI All-Country World index down on Wall Street sell-off, Asia and Europe
london — Global equities slipped to a two-week low on Friday as a sell-off on Wall Street led by technology and biotech shares and triggered by growing concerns that valuations are over stretched spread to Asia and Europe.
With stocks out of favour, government bonds were set to benefit, with the yield on the benchmark 10-year US Treasury note falling to its lowest since early March.
However, Greek 10-year government bond yields rose as investors booked profits on a strong rally in the run-up to the country’s first debt sale since it defaulted two years ago.
The MSCI All-Country World index of shares fell 0.5 per cent in mid-morning trading to its lowest level since late March, the MSCI Europe dropped 1.2 per cent, while the STOXX Europe 600 index was down 1.3 per cent. That followed a 3.1 per cent slide in the tech-heavy US Nasdaq index on Thursday, the biggest drop in two-and-a-half years, and a 2.4 per cent decline in Japan’s Nikkei Average on Friday, the biggest weekly fall since the March 2011 tsunami and nuclear disaster.
“The sell-off in tech stocks in the United States, where gains were quite strong, is affecting other markets because the US is still setting the tone for global markets,” said Klaus Wiener, head of tactical asset allocation and chief economist at Generali Investments Europe, which manages $500 billion.
“But I don’t think this is the start of a longer correction as the US economy will gain further momentum. With key interest rates pinned to the zero-bound, we are still in a low-yield environment. Investors’ hunger for yield will ensure that every time equity markets correct, demand will rise.”
What increasingly looks like a major portfolio shift from momentum plays in US technology and biotechnology stocks was having a knock-on effect across all regions and sectors, pressuring even defensive shares.
Momentum investing involves buying stocks that are already trending higher, often taking their price/earnings ratios into the stratosphere. When the momentum turns, prices can fall rapidly as investors rush to the exits.
I don’t think this is the start of a longer correction as the US economy will gain further momentum
Klaus Wiener
Dollar flat, oil soft
Technology stocks led the retreat in Europe, with the sector index, following its US counterpart, down 2.4 per cent on growing fears the shares have risen too far, too fast and are now relatively expensive compared with the broader market. The European healthcare index was down 1.8 per cent.
The Stoxx Europe 600 Technology index, which surged nearly 50 per cent in two years to the end of December 2013, is down about three per cent so far this year.
“It’s a pre-Easter, pre-earnings season correction and represents an opportunity to invest in the value part of the stock market as the cyclical shares suffer from past hype,” said Didier Duret, global chief investment officer at ABNAmro Private Banking.
The dollar stabilised after five sessions of losses against a basket of currencies. The dollar index was flat at 79.395, having hit a threeweek low of 79.33 on Thursday. US 10-year yields, which often correlate with the dollar, were last at 2.641 per cent in Europe, the lowest in around a month.
On the commodities front, the recent fall in the dollar and weaker equities helped safe-haven gold to trade near its highest in 2-1/2 weeks and stay on track for its best week in a month.
Oil remained soft in the wake of Thursday’s disappointing trade data from China and the prospect of increased supply. Brent crude fell 0.3 per cent to $107.17 a barrel
ondon nickel rose 2.3 per cent to a 13-month high and headed for its ninth weekly gain in 10 weeks as a ban on ore exports from Indonesia fuelled prices of the metal. —