October 31, 2020

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SoftBank shares sink as tech rout spreads to Asia

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Shares in SoftBank fell as much as 7 per cent on Wednesday morning as the worst one-day sell-off in US technology stocks since March’s market chaos reverberated through Asia.

The drop in early Tokyo trading took the tech group’s total decline this week to more than 13 per cent, wiping off over $15bn in market value. Investors are concerned that SoftBank’s controversial multibillion dollar derivatives-based trading strategy has given it outsized exposure to the recent surge in US tech shares. The stock later trimmed losses to trade 6 per cent lower.

Overnight, tech stocks on Wall Street dropped for a third straight session. The Nasdaq fell 4.1 per cent into correction territory, defined as a decline of more than 10 per cent from a recent high.

Tesla, the electric car maker, fell 21 per cent in its worst trading day ever, with over $82bn wiped from its market capitalisation. Apple and Microsoft fell 6.7 per cent and 5.4 per cent, respectively. The broader S&P 500 index shed 2.8 per cent.

Gloomy market sentiment was also compounded by drugmaker AstraZeneca’s move to pause a coronavirus vaccine trial after one participant suffered an adverse reaction — a move that could dent hopes of quick relief from the pandemic.

Tech shares dragged benchmarks lower across Asia Pacific on Wednesday morning, with Japan’s Topix down 1.5 per cent and Australia’s S&P/ASX 200 falling 2 per cent.

In China, Shenzhen’s tech-focused ChiNext index lost 2 per cent while the broader CSI 300 dropped 1.1 per cent. In Hong Kong, the benchmark Hang Seng retreated 1.3 per cent with Chinese ecommerce group Alibaba down 3 per cent.

Nasdaq futures tipped the tech benchmark to rise 0.6 per cent when US trading resumes later in the day, while the S&P 500 was expected to open little changed.

“A market fuelled by central bank largesse, economic surprises and record earnings beats in the last few months was never going to maintain its heady pace forever,” said Kerry Craig, a global market strategist at JPMorgan Asset Management. But he added that “not all shocks are a warning of an impending collapse in risk sentiment”.

Mr Craig said that “markets may move sideways rather than up in the coming months” due to uncertainties around the pace of America’s economic recovery from coronavirus and November’s US presidential election.

SoftBank led a broad decline for the technology-heavy Nikkei 225 index, which matched the Topix’s fall of 1.5 per cent. Other Japanese tech names affected were games maker DeNA, down 4.7 per cent, and electronics group Casio, down 3.8 per cent. 

The drop in the Nikkei left traders almost certain that the Bank of Japan will later on Wednesday make a large purchase of exchange traded funds — its regular strategy for supporting the market on days when it dips significantly.

However, some strategists said it was important not to overstate the significance of the current sell-off, given the recent run-up in US tech stocks.

“In general, those [US] asset prices are going back to the levels they were at in the first half of August . . . it was very natural that what happened in the second half would be unwound,” said Yunosuke Ikeda, chief equity strategist at Nomura.

He added that tech stocks outside the US had not risen by a similar magnitude and would therefore be unlikely to sell off as heavily.

In currencies, sterling slipped 0.2 per cent against the US dollar to $1.2960 as tensions over UK trade talks with the EU prompted fears of a disorderly Brexit.

Oil prices dropped further on concerns that a resurgence in coronavirus cases would hobble a recovery in energy demand. Brent crude, the global benchmark, fell 0.7 per cent to $39.51 a barrel while US marker West Texas Intermediate dropped 0.9 per cent to $36.43.

2020-09-08 22:18:51

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