The great tech unwind is gathering pace. Asian markets tumbled overnight as the tech sell-off that has haunted Wall Street finally crossed the Pacific. Japan’s Nikkei shed 2.3%, while South Korea’s Kospi dropped 1.8%. Hong Kong’s Hang Seng, never one to miss a party, fell 1.5%, dragged down by Tencent and Alibaba. The culprit? A perfect storm of rising bond yields, hawkish central bank chatter, and a growing realisation that the era of free money is well and truly over.
Let’s be clear: this is not a garden-variety dip. This is a repricing of risk. When the 10-year US Treasury yield creeps above 4.5%, as it has done this week, every asset priced on hope and dreams starts to look very expensive. Tech stocks, with their long-duration cash flows, are the first domino to fall. The message from the market is simple: the cost of capital matters, and it’s rising.
For the London FTSE, the ripple effect is unavoidable. Our market is less tech-heavy than its US counterpart, but it is not immune. The FTSE 100, with its bias toward energy, mining, and banks, may hold up better on the surface, but look beneath the bonnet and you’ll see the cracks. Miners are already feeling the pinch from a slower China; oil majors are vulnerable to a demand slowdown. And the banks? They may enjoy higher net interest margins, but a recession would crush loan demand.
The real danger for London, however, is not just the direct hit from tech. It is the capital flight. When global investors get spooked, they retreat to the US dollar and US Treasuries. The pound, already battered by UK inflation and political uncertainty, will come under further pressure. A weaker sterling might boost the FTSE 100’s overseas earnings, but it also fuels imported inflation, making the Bank of England’s job even harder.
And what of the Bank? They are caught between a rock and a hard place. Inflation remains stubbornly above target, but the economy is coughing and spluttering. Raise rates too much and you choke off growth; keep them too low and you fuel currency depreciation. The minutes of the latest MPC meeting, released today, reveal a deeply divided committee. The hawks want to act; the doves want to wait. The market, as always, is voting with its feet.
So what does this mean for the average investor? Do not panic, but do not be complacent. The days of easy returns are gone. Now is the time to focus on quality, earnings visibility, and real cash flows. If you own tech, you need to ask yourself: can this company survive a world where money costs 5%? If the answer is no, get out. For the FTSE, look to defensive sectors like utilities or healthcare, which offer steady dividends. But even those are not sacrosanct if the economy tips into recession.
In short, this is a classic market correction, but with an edge. The underlying problem is not just tech valuations; it is the end of the free money era. The liquidity that inflated everything is being drained. The next few weeks will tell us whether this is a buying opportunity or the start of something uglier. My bet? Keep your powder dry. The bottom is not yet in.
