The contagion is moving west. Asian equity markets have taken a beating this morning, with the tech-heavy indices in Tokyo, Seoul, and Taipei shedding between 3% and 5% as a broad sell-off in technology shares rattles investor confidence. The Nikkei 225 slumped 4.2% by the close, its worst single-day performance since the pandemic panic of 2020, as semiconductor giants and electronics exporters were hammered. The rout has now set its sights on London, where the FTSE 100 is bracing for a grim open, with futures pointing to a drop of over 1.5%.
The trigger? A perfect storm of profit warnings from key US tech bellwethers, escalating trade tensions, and a sudden flight to safety that has sent bond yields tumbling. The VIX, the market's fear gauge, has spiked above 30 for the first time in months. Investors are dumping risk assets with a vigour that suggests a full-blown reassessment of the tech sector's valuations. For months, I have been warning that the froth in tech stocks was unsustainable, that central bank liquidity was masking underlying weaknesses. The bill is now coming due.
In Tokyo, Sony and SoftBank led the declines, each falling more than 6%. In Seoul, Samsung Electronics dropped 5.5% after reporting disappointing memory chip demand. The KOSPI index closed down 4.8%. Taiwan’s TSMC, the world’s largest chipmaker, slid 7% as investors fretted about export restrictions and a slowdown in global demand. These are not isolated events; they are symptoms of a broader market malaise.
The impact on London will be direct. The FTSE 100, heavily weighted with mining and energy stocks, has been a relative haven this year, but it cannot escape the gravity of a tech rout. The index’s tech and financial stocks will bear the brunt. Banks, exposed to margin calls and trading losses, will be particularly vulnerable. I expect the FTSE 100 to open at least 100 points lower, with the mid-cap FTSE 250 likely to suffer even more.
Meanwhile, government bonds are rallying as capital flees equities. UK gilt yields have dropped sharply, with the 10-year yield falling 10 basis points to 3.85% as investors seek the safety of sovereign debt. The pound is under pressure, slipping 0.6% against the dollar to $1.26. Currency markets are pricing in a risk-off move, and the Bank of England will be watching closely. Any signs of a liquidity crunch could prompt emergency intervention, but for now, the central bank is likely to stay its hand.
The real worry is whether this is a correction or the start of something deeper. Corporate earnings have been weakening, and the macroeconomic outlook is clouded by persistent inflation and geopolitical uncertainty. The IMF has already downgraded its global growth forecast. If the tech rout spreads to other sectors, we could be looking at a proper bear market.
For investors, the message is clear: get your house in order. Cash is king in times like these. The bottom line is that market volatility is back with a vengeance, and the party in risk assets is over. The only question now is how hard the hangover will be.
