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Markets

Asia tech stocks face brunt of global market sell-off

Tencent, SoftBank, Samsung among casualties of trade war jitters

Given the large market capitalization of Asian tech companies, their declines weighed heavily on market indexes across the region.    © Reuters

HONG KONG -- Wall Street's global technology sell-off spilled into Asia on Thursday, pushing stock prices sharply lower and prompting analysts to warn investors not to expect a turnaround anytime soon, as trade tensions and China's regulatory environment continue to cloud the economic outlook.

The ripple effect of Wednesday's Wall Street rout spread to tech giants across the region, with China's Tencent Holdings dropping 6.8%, and SoftBank Group of Japan seeing its shares skidding 5.8%. South Korea's Samsung Electronics lost 4.9%. Tencent's decline brought its market value down to HK$2.54 trillion, knocking it out of the ranks of the world's 10 most-valuable public companies, falling behind ExxonMobil's $357.84 billion market cap.

Given the large market capitalization of Asian tech companies, their declines weighed heavily on market indexes across the region. Tokyo's Nikkei Stock Average fell 3.9%, while in Hong Kong the Hang Seng Index closed down 3.5% to mark a new low for the year. In China, the Shanghai Composite Index tumbled 5.2% to a four-year low. In Taiwan, the Taiex fell 6.3%.

"It is hard to say how long this share slide will last, but I don't expect a recovery immediately," said Bouli Wang, an investment analyst at Sumitomo Mitsui Asset Management in Hong Kong.

He warned that tech companies in Asia are no longer a safe bet, pointing to the escalating trade war between the U.S. and China -- the world's two largest economies -- as the major cause.

The U.S. has already imposed tariffs on $250 billion worth of goods from China and "the supply chain has been feeling the heat," Wang said. "What if they slap another $200 billion? That would cover pretty much everything from smartphones to personal computers," he said. "Investors are risk averse at the moment."

Douglas Morton, head of Asian research for institutional broker Northern Trust Capital Markets in London, shares a similar view.

Valuations were now approaching levels that in the past have proved good entry points to pick up tech shares because of recent declines. However, Morton said, "risk aversion now is very, very high." He also said that the growing tensions over technology between China and the U.S. were a significant factor in the Asian tech sell-off.

Although Chinese internet companies have escaped the trade dispute, analysts said Beijing's tougher scrutiny over tech companies has also hampered investors' confidence.

Tencent has been particularly hard hit. The Hong Kong-listed conglomerate's quarterly profit slipped for the first time in 13 years in the second quarter's as regulators in Beijing withheld approval for the company to cash in on its most successful video game.

"It's very clear that Chinese authorities have stepped up regulations over the gaming and other internet platforms," said Harry Yuen, associate director at Oceanwide Securities in Hong Kong. He said the company has not worked out a convincing solution, which is making investors worried. "It has been too long," he said.

Tencent was by far the most traded stock on the Hong Kong exchange on Thursday, with turnover of 18.15 billion Hong Kong dollars ($2.32 billion), nearly triple that of second-place Ping An Insurance Group. The company has lost one third of its market value since the beginning of the year. To stabilize its share price, Tencent has bought back shares totaling more than HK$800 million since since September through to Oct. 10, according to stock exchange filings.

But Yuen said such moves may offer "little support" to its share price, nothing that it is not enough to turn the tide. "There is little [Tencent] can do, since the market is worrying about the policies," he said.

A possible economic slowdown in the U.S. also is adding to the challenges of a market recovery.

"Although the tech sector has performed worst, it is not just a tech story," said Oliver Jones, markets economist at Capital Economics in London, adding that cyclical sectors generally have underperformed.

Jones attributed the decline to the sharp rise in U.S. Treasury yields since mid-August. He said that the trade war between the U.S. and China and concerns over China's economy are unlikely to be a major factor, "as U.S. equities have shrugged off bad news on this front so far this year." Investors may now be focusing on the prospect of tighter policy by the Federal Reserve, "causing the U.S. economy to slow further ahead -- this would be consistent with cyclical stocks underperforming, as they are most sensitive to the economic cycle," Jones said.

"Given our view that the U.S. stock market will remain under pressure, especially next year as it becomes clear that the economy is slowing, we think that Chinese tech shares will fall further, too. The slowdown that we are forecasting in China's economy and the prospect of the trade war escalating again are additional headwinds."

Thursday's selling spree even included companies with upbeat announcements. Hong Kong-listed Sunny Optical Technology (Group) on Thursday reported a 61.2% increase in phone lens set shipments for September compared with a year earlier, but its stock fell 6.2% to HK$71.30.

"These are very unusual markets at the moment," Morton said, noting that stock prices declines have run ahead of negative signals from tech companies' operations and analyst ratings.

In Taiwan, however, many tech companies remained optimistic that the market rout would be limited. Several told the Nikkei Asian Review that they believed the sell-off was only temporary and that share prices would soon bounce back. Taiwan's Vice Premier Shih Jun-Ji said there was as yet no reason for the government-backed National Stabilization Fund to enter the stock market to prop up share prices, since the fundamentals of the Taiwan Stock Exchange remained stable. But, the government would watch the market closely and react immediately when necessary, he told reporters.

Nikkei Asian Review deputy editors Zach Coleman and Dean Napolitano, and Nikkei staff writers Nikki Sun and Lauly Li contributed to this article.

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