The Asian trading session opened with a thud this morning, as technology shares took a sharp downturn, dragging benchmark indices across the region into the red. Tokyo's Nikkei 225 fell 2.1%, Seoul's Kospi dropped 1.8%, and Hong Kong's Hang Seng shed 1.5%, led by a sell-off in semiconductor and internet giants. The trigger appears to be a combination of profit-taking after a strong rally and renewed concerns about global demand, exacerbated by disappointing earnings guidance from a major Taiwanese chipmaker. The MSCI Asia ex-Japan index is now on track for its worst weekly performance in a month, a stark reminder that market sentiment remains fragile.
But across the globe, the London Stock Exchange is proving to be a bastion of calm. The FTSE 100 opened flat to slightly higher, buoyed by gains in energy and mining stocks as commodity prices stabilise. The contrast is striking: while Asian investors are fleeing risk, London's old-economy stalwarts are providing a buffer. This is largely a story of capital flight from speculative tech into value plays. The resilience of the FTSE is a testament to its composition heavy on cyclicals and defensives, which are less susceptible to the whims of the tech cycle.
Let's look at the numbers. The yield on the 10-year gilt edged up 2 basis points to 4.12%, reflecting a mild risk-off tone but nothing like the panic we saw in March. The pound is holding steady against the dollar at $1.2650, suggesting that foreign investors are not yet abandoning UK assets. Meanwhile, the VIX the so-called fear index has ticked higher but remains below 20, indicating that the anxiety is contained for now.
What should we make of this divergence? For one, it underscores the market's obsession with interest rates. The Bank of England's cautious stance, with rates likely to stay higher for longer, is actually supporting the pound and gilt yields. In contrast, the Bank of Japan's ultra-loose policy is being tested as global yields rise, making Japanese equities look overvalued. The tech sell-off in Asia is a reflection of that: a reassessment of growth prospects in a world where capital is no longer free.
Fiscal responsibility is also playing a role. The UK government's commitment to fiscal discipline, despite political pressures, is being rewarded by bond vigilantes. Asian governments, by contrast, are facing the consequences of stimulus hangovers and property bubbles. The resilience of London is not just luck; it's the result of hard-nosed policy decisions.
Looking ahead, the question is whether this divergence will widen or narrow. If Asian markets continue to slide, the contagion could eventually reach London. But for now, the City is holding firm. Investors should keep a close eye on central bank rhetoric next week. Any hints of a pivot in Asia could spark a recovery. Until then, I'd say the FTSE is a safe harbour in a stormy sea. But don't get too comfortable; markets have a habit of proving the skeptics right eventually.
This is Alastair Thorne, Chief Financial Editor, reporting from the heart of the City.
