The sun has set on the Asian equity rally, and with it, the froth has blown off the tech sector. This morning, markets in Tokyo and Seoul opened sharply lower, dragging the tech-heavy indices down by more than 2% as investors took profits off the table. The catalyst? A combination of regulatory jitters out of Beijing and a sudden reassessment of interest rate expectations after a hawkish remark from a Federal Reserve official overnight. The domino effect was swift: Tokyo’s Nikkei surrendered its recent gains, and the Kospi followed suit.
But here in London, the scene is different. As I write, the FTSE 100 is trading flat, a bastion of calm in a sea of red. Our index, heavy with value stocks and defensive sectors, is proving resilient. The miners and energy giants are holding up, buoyed by a weaker pound and steady commodity prices. The volatility index has barely twitched. It seems the City is taking a measured view. Perhaps we have learned from past frenzies. Or perhaps it is just the natural caution of a market that has seen it all before.
Let us talk about the tech wreck. The sell-off in high-growth stocks is a textbook correction. For months, valuations have been stretched to breaking point. The price-to-earnings ratios of some Silicon Valley darlings were laughable. Now, reality is biting. The end of cheap money is near. Central banks are turning hawkish. The liquid lunch is over. For those of us who have spent decades watching these cycles, it is no surprise. The question is: how far will it go? I suspect there is more pain to come. The bubble needed pricking, and the needle is in.
For London, the steadiness is a silver lining. Our market is less exposed to the speculative mania that grips tech. We are a market of banks, insurers, and commodity producers. These are businesses that generate real cash flows. They are not priced on dreams. In times of uncertainty, capital flows to safety. Gilt yields remain low, but not alarmingly so. The 10-year is trading around 1.2%, a healthy level that reflects steady inflation expectations. The Bank of England will be watching, but there is no panic here.
Fiscal responsibility, or the lack thereof, is always on my mind. The government's spending spree has consequences. Inflation is ticking up. The consumer price index is above target. The Bank will have to act eventually. Higher rates will hit the housing market and consumer spending. But for now, the market is pricing in a gradual tightening. No shocks. That is the key.
Capital flight? Not yet. The pound has weakened slightly against the dollar, but that is a natural adjustment. We are not seeing the kind of exit that plagued us in the aftermath of the Brexit vote. The current account deficit remains a concern, but foreign investors still find UK assets attractive. The dividend yield on the FTSE 100 is robust. That keeps the money flowing in.
In summary, the Asian rally has ended, as all good things must. Tech stocks are paying the price for their exuberance. But London stands firm, a rock of fiscal prudence in a speculative world. The bottom line is: volatility creates opportunity. For the savvy investor, this is a time to buy quality. For the gambler, it is time to get out. I know which side I am on.
