World Markets Strike Two-Week Low Amid Tech Rout
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 concerns that valuations are over stretched spread to Asia and Europe.
The MSCI All-Country World index .MIWD00000PUS fell 0.4 percent by 0759 GMT to a two-week low, while the MSCI Europe .MIEU00000PUS index dropped 0.8 percent. That followed a 3.1 percent slide in the tech-heavy U.S. Nasdaq index .IXIC on Thursday and a 2.4 percent decline in Japan's Nikkei Average .N225 on Friday.
What increasingly looks 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, prices can fall rapidly as investors rush to the exits.
"The sell-off is the result of increasing concerns about the future earnings growth," said Christian Stocker, equity strategist at UniCredit in Munich. "Valuations are high compared to previous years and the trend of earnings estimates is very muted in the U.S. and almost flat in Europe."
Technology stocks led the retreat in Europe, with the sector index .SX8P, following its U.S. counterpart, down 1.9 percent 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 .SXDP was down 1.4 percent.
The STOXX Europe 600 Technology index, which surged 27 percent last year after gaining 22 percent in 2012, is down 3 percent so far this year.
According to Thomson Reuters Datastream, the tech sector is the most expensive in Europe, trading at 19 times its 12-month forward earnings, against a 10-year average of about 16 times, and 14 times for the broader STOXX 600 index .STOXX.
"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 ABN-AMRO Private Banking.
With stocks out of favor, government bonds were set to benefit. The yield on the benchmark 10-year U.S. Treasury note fell to its lowest since February 27 at 2.62 percent US10YT=RR and was last at 2.655 percent in Europe.
The dollar stabilized after five sessions of losses against a basket of currencies. The dollar index .DXY was flat at 79.411 having hit a three-week low of 79.33 on Thursday.
The recent fall in the dollar and weaker equities helped safe-haven gold trade near its highest in 2-1/2 weeks.
Oil remained soft in the wake of Thursday's disappointing trade data from China and the prospect of increased supply. Brent crude fell 0.2 percent to $107.29 a barrel.
(Additional reporting by Wayne Cole in Sydney; Editing by Catherine Evans)