Shares in the Tokyo Stock Exchange’s Mothers market for high-growth start-ups dipped below a critical psychological level of 800, a line analysts believe indicates strong support among retail investors © AP
Global stocks endured renewed selling following the worst week for equities in more than a year, as investors weighed the possibility of tighter monetary policy from the US Federal Reserve.
Shares in technology companies that have thrived during the pandemic led the declines on Monday, as investors continued their shift out of the sector due to concerns global central banks will begin more aggressively reducing stimulus measures later this year.
The Stoxx Europe 600 regional share index fell 2.2 per cent to its lowest level in a month. Its tech sub-index dropped 3.8 per cent, taking its loss so far in January to more than 11 per cent.
US stock-index futures pointed to further falls on Monday, with those tracking an index of the biggest 100 stocks on the Nasdaq Composite down 0.6 per cent. In Asia, 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.
Investors are focused on prospects of the Fed turning more hawkish at its rate-setting meeting this week to combat surging inflation.
Goldman Sachs said at the weekend it expected the Fed to signal 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”.
Futures markets have priced the Fed 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.
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.
The FTSE All-World equities index shed more than 4 per cent last week in its heaviest fall since October 2020, with a warning on subscriber growth by streaming giant Netflix casting a pall over the start of quarterly earnings season.
Wall Street stocks faced a particularly strong hit, with the tech-heavy Nasdaq Composite shedding 7.6 per cent.
Investors are also questioning when the Fed will start to shrink its $9tn balance sheet as it unwinds the massive bond-buying programme it launched to sooth markets at the height of the coronavirus turmoil in March 2020.
In a sign of the growing angst, US retail investors have turned cautious. A survey of members of the American Association of Individual Investors found 47 per cent were “bearish” in the week to January 19, compared with a historical average of 31 per cent.
The global cryptocurrency market also sustained a fresh jolt of selling after a sharp decline on Friday. Bitcoin, the biggest digital currency by market value, fell 8 per cent to $33,580, the lowest level since July 2021.