Tokyo and Shanghai led the sell-off overnight as technology stocks suffered their worst drubbing since the dot-com crash. The Nikkei 225 slumped 4.2% and the Hang Seng lost 3.
8%, driven by a brutal rout in semiconductor and AI-related shares. The trigger: a profit warning from a major US chipmaker that reignited fears of a global tech bubble bursting. Investors ran for the exits, dumping risk assets and piling into government bonds, sending Japanese 10-year yields tumbling 12 basis points.
This is a classic flight to safety, but one that speaks to deeper anxieties. The market is no longer pricing in a soft landing; it is pricing in a recession. The tech sell-off has all the hallmarks of a liquidity crisis: forced selling, margin calls, and a desperate scramble for cash.
Central banks now face an impossible choice. Cut rates and risk stoking inflation. Or hold firm and watch the contagion spread from equities to credit.
The Bank of Japan's yield curve control looks increasingly like a relic. If markets continue to plunge, the Fed will be forced to blink. But they should not.
Fiscal incontinence has fuelled this speculation. Let the bubble deflate. A correction is necessary to restore sanity.
The bottom line: this is not a buying opportunity. It is a warning. The party is over.
And the hangover will be severe.
