European and Asian stocks fell on Monday following the worst week for global equities in more than a year, as investors weighed the possibility of tighter monetary policy from the US Federal Reserve.
Shares in fast-growing technology companies that are seen as vulnerable to higher interest rates led the declines, with South Korea’s tech-heavy Kospi index down 1.5 per cent and Hong Kong’s Hang Seng Tech index falling 2.9 per cent.
Chinese technology companies were also down, as video-sharing app Kuaishou dropped 3.1 per cent, food delivery group Meituan lost 2.2 per cent and internet group Tencent fell 1.3 per cent. European tech stocks also dropped.
Hong Kong’s broader Hang Seng index fell 1.2 per cent, while Australia’s S&P/ASX 200 was down 0.5 per cent and Tokyo’s Topix declined as much 1.2 per cent before rebounding. In European markets, the regional Stoxx 600 index fell 0.4 per cent, with markets in London, Frankfurt and Paris recording similar declines in early trading.
Investors are focused on the prospect that the Fed will take a further hawkish tilt at its rate-setting meeting this week as its officials look to combat high levels of inflation.
Goldman Sachs said at the weekend that it expects the Fed to signal this week that it will begin raising interest rates from historic lows in March. However, the Wall Street bank warned clients that there was a “risk that the Federal Open Market Committee will want to take some tightening action at every meeting until that picture changes.”
Goldman added that there was a chance the Fed will increase interest rates more than four times this year — more aggressive than the three to four rate rises that has been priced in to markets in recent weeks.
Higher interest rates increase borrowing costs for companies across the spectrum. However, the spectre has proven particularly painful for companies that are favoured for their strong growth prospects as higher long-term returns from bonds tarnish the allure of more speculative assets.
Shares in the Tokyo Stock Exchange’s Mothers market for high-growth start-ups, for example, has dropped around 18 per cent so far this year. In the US an index of unprofitable tech stocks collated by Goldman has lost around a fifth of its value this year.
“It’s a very challenging start to the year,” said Takeo Kamai, the head of execution services at CLSA in Tokyo. “Investors are selling out of the most crowded names, and although we are seeing some appetite here, a lot of them are at this point working out whether it is safe to get back in yet.”
The FTSE All-World equities index shed more than 4 per cent last week in its heaviest fall since October 2020. Wall Street stocks faced a particularly strong hit, with the tech-heavy Nasdaq Composite shedding 7.6 per cent.
The global cryptocurrency market stabilised on Monday after the price of bitcoin, the largest by market value, plunged to a six-month low on Saturday as investors moved out of speculative assets.