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 What was increasingly looking like a major portfolio shift from
momentum plays in U.S. 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 it can do so viciously as
investors rush to the exits at the same time.
Japan, in particular, was vulnerable both to the dive in tech stocks
and to the strength of the yen, which crimps exports and corporate
profits. The Nikkei <.225> gapped lower right from the off and never
looked back, shedding 2.6 percent to 13,936.
A key chart bulwark in the 14,000 to 14,200 zone snapped like a
twig, opening the door for a potential retreat to support at 13,750.
Tech bellwether Softbank <9984.T> led the way with a drop of 4.8
percent to its lowest in over two months.
Still, dealers suspected the authorities would be working behind the
scenes to get public pension funds to buy and stop the rot.
The slide followed a brutal day on Wall Street, where the Nasdaq
suffered its worst single-day drop since late 2011. The tech-heavy
index <.IXIC> sank 3.1 percent, while the Nasdaq biotechnology index
<.NBI> plunged 5.6 percent.
The selling rippled through the broader market pulling the Dow <.DJI>
down 1.62 percent and the S&P 500 <.SPX> 2 percent.
Investors were in part taking profits as the U.S. corporate profit
season started amid expectations that results would be not be
stellar enough to support the high valuations of some stocks.
Markets across Asia were spooked by the scale of the losses, with
Korea <.KS11> down 0.9 percent in morning trade and Australia <.AXJO>
0.7 percent. MSCI's broadest index of Asia-Pacific shares outside
Japan <.MIAPJ0000PUS> lost 0.7 percent.
Even the MSCI emerging markets index <.MSCIEF> eased back a little,
a day after reaching its highest for the year so far. The emerging
sector has been on a tear in the last couple of weeks as funds cut
back exposure to developed markets.
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BONDS BENEFIT
With stocks out of favor, government bonds were set to benefit and
yields on the benchmark 10-year U.S. Treasury note fell to their
lowest since February 27 at 2.62 percent. They were last at 2.647
percent in Asia.
Even Greece managed a triumphant return to the bond market just two
years after its default placed it at the center of the euro zone
debt crisis.
Greece drew solid demand at its five-year bond sale, which aimed to
raise three billion euros and offered a yield of 4.95 percent,
beating Athens' 5 percent target. It had been expected to draw in
U.S. investors including hedge funds.
The afterglow from the Greek deal combined with the latest drop in
U.S. yields helped the euro higher on the dollar. On Friday, the
single currency was up at $1.3892 having rallied two full cents over
the past four sessions.
The dollar also lost ground to the yen, falling to 101.45 from a
high of 102.14 on Thursday. The dollar is now nearing major chart
support around 101.20 that has held for much of the past three
months and a breach would be bearish.
The dollar index also hit a three-week low of 79.330 <.DXY>, well
below a seven-week high of 80.599 set only last week. It last stood
at 79.401.
The fall in the dollar helped gold hit a 2-1/2-week high at
$1,324.40 an ounce, though it had eased back to $1,317.14 on Friday.
Oil prices remained soft in the wake of disappointing trade data
from China out on Thursday. Brent crude eased 17 cents to $107.29 a
barrel, while U.S. crude was quoted down 18 cents at $103.22 a
barrel.
(Editing by Shri Navaratnam and Eric Meijer)
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