"Japanese shares sank to six-month lows on Friday as an escalating selloff on Wall Street spread to Asia and sluggedmarkets that had been fairly resilient up to now.
What was increasingly looking like a major portfolio shift from momentum plays in U.S. technology and biotechnology stocks was having a knock-on effect across all regions and sectors, pressuring even defensive shares.
Momentum investing involves buying stocks that are already trending higher, often taking their price/earnings ratios into the stratosphere. When the momentum turns it can do so viciously as investors rush to the exits at the same time.
Japan, in particular, was vulnerable both to the dive in tech stocks and to the strength of the yen, which crimps exports and corporate profits. The Nikkei .225 gapped lower right from the off and never looked back, shedding 2.6 percent to 13,936.
A key chart bulwark in the 14,000 to 14,200 zone snapped like a twig, opening the door for a potential retreat to support at 13,750. Tech bellwether Softbank (9984.T) led the way with a drop of 4.8 percent to its lowest in over two months.
The slide followed a brutal day on Wall Street, where the Nasdaq suffered its worst single-day drop since late 2011. The tech-heavy index .IXIC sank 3.1 percent, while the Nasdaqbiotechnology index .NBI plunged 5.6 percent.
Markets across Asia were spooked by the scale of the losses, with Korea .KS11 down 0.9 percent in morning trade and Australia .AXJO 0.7 percent. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost 0.7 percent.
Even the MSCI emerging markets index .MSCIEF eased back a little, a day after reaching its highest for the year so far. The emerging sector has been on a tear in the last couple of weeks as funds cut back exposure to developed markets.
The afterglow from the Greek five year bond, deal combined with the latest drop in U.S. yields helped the euro higher on the dollar. On Friday, the single currency was up at $1.3892 having rallied two full cents over the past four sessions.
The dollar also lost ground to the yen, falling to 101.45 from a high of 102.14 on Thursday. The dollar is now nearing major chart support around 101.20 that has held for much of the past three months and a breach would be bearish.
The dollar index also hit a three-week low of 79.330 .DXY, well below a seven-week high of 80.599 set only last week. It last stood at 79.401.
The fall in the dollar helped gold hit a 2-1/2-week high at $1,324.40 an ounce, though it had eased back to $1,317.14 on Friday.
Oil prices remained soft in the wake of disappointing trade data from China out on Thursday. Brent crude eased 17 cents to $107.29 a barrel, while U.S. crude was quoted down 18 cents at $103.22 a barrel.
Source: Reuters
