European and Asian shares declined on Thursday after Wall Street equities posted their worst day since early in the coronavirus pandemic due to worrying new signs of faltering economic growth.
The Stoxx Europe 600 index of the continent’s largest companies fell 1.7 per cent in morning trading, with markets in London, Frankfurt and Paris all under pressure. S&P 500 futures declined 1.2 per cent, signaling Wall Street’s blue-chip equities gauge could fall further after dropping 4 per cent on Wednesday in the steepest sell-off since June 2020.
The sharp slide was triggered by mounting concern that inflation was undercutting global growth after weak results from consumer bellwethers underscored how higher prices were hitting both retail spending and supply chain costs.
The US retailer Target led the declines on Wednesday, plunging 25 per cent after warning that its profit margins were under pressure, a day after its larger rival Walmart issued a similar alert. Both retailers have notched their worst daily stock falls since 1987 this week.
Meanwhile, Cisco Systems, a big US maker of networking equipment, cut its full-year earnings outlook after the closing bell on Wednesday as it said Covid-19 lockdowns in China and the war in Ukraine had knocked out its sales. The group’s shares fell 14 per cent in pre-market trading on Thursday.
“Growth fears have taken over the market, which is pricing a higher chance of recession at this stage. . . it’s difficult to get positive, ”said Jeremy Gatto, an investment manager at Unigestion.
Despite the bearish sentiment, some analysts say markets are pricing in too much recession risk.
“A recession is not inevitable, but clients are constantly asking what to expect from equities in the event of a recession,” David Kostin, chief US equity strategist at Goldman Sachs said, adding that the Wall Street bank forecasts a roughly one-in-three chance of a US recession in the next two years.
Hong Kong-listed shares in Chinese internet group Tencent fell as much as 8.6 per cent, helping to drag the Hang Seng Tech index down 4 per cent and the broader Hang Seng index 2.5 per cent lower. Elsewhere in the region, Japan’s Topix and South Korea’s Kospi both shed more than 1 per cent.
Tencent’s fall came after the Chinese internet group reported its slowest revenue growth on record. The company recorded a 51 per cent drop in profits in the first quarter due to Beijing’s crackdown on the tech sector and the impact of harsh Covid-19 lockdowns on consumer spending.
Charlie Chai, an analyst with 86Research, said Tencent’s “fairly underwhelming” results in gaming, advertising and new business services were a reflection of the big picture [in China]”As a downswing in business confidence translated into reduced corporate spending.
With China’s economic outlook worsening, Standard Chartered cut its annual growth forecast for the world’s second-largest economy to 4.1 per cent from 5 per cent.
Shares in US tech groups also suffered on Wednesday, with Apple, Nvidia and Amazon all dropping more than 5 per cent while the Nasdaq Composite index closed down 4.7 per cent.
Additional reporting by Primrose Riordan in Hong Kong and Naomi Rovnick in London.