A major sell-off in technology stocks overnight in the US has spilled over into European and UK markets, with several investment trusts tanking.

The UK’s largest closed-end fund and sole FTSE 100 member, Scottish Mortgage (SMT), slumped 4% in early trading to £10.95, the stock’s lowest since early March. Scottish Mortgage holds big bets on Amazon, Tesla and Tencent, the Chinese social media company that has found itself in the sights of Chinese regulators which is getting tough on digital platform competition.

Tech specialist trusts Allianz Technology (ATT) and Polar Capital Technology (PCT) also fell sharply, down 5.5% and 3.5% respectively at 249.5p and £21.02. Several trusts run by Baillie Gifford, which bets big on long-term growth companies, also came under heavy selling pressure.

Baillie Gifford US Growth (USA), Pacific Horizon (PHI) and Edinburgh Worldwide (EWI) joined other growth oriented trusts, such as JPMorgan China Growth & Income (JCGI) and JPMorgan Japanese (JFJ) in posting large declines.

SHARP REACTION

Overnight, the Nasdaq 100 index fell more than 2.5%, prompting a 3% fall in Japan’s Nikkei index and a 3.7% fall in the Taiwan stock market. US futures are still pointing to the downside with the Nasdaq 100 indicated down a further 2.6%.

Global sentiment soured after investors dumped Wall Street's market-leading growth stocks on Monday ahead of the latest reading on US consumer prices, which many fear could prompt the Federal Reserve to rethink its monetary policy stance.

INFLATION AND VALUATIONS

The thinking goes that as the global economy recovers it could spark sharper than expected inflation would could force the Fed’s hand in raising interest rates. That wouldn’t play well for long-dated profits that are typical in the wider tech space and could weigh on technology valuations.

That said, as we recently explained in our inflation-based ‘Rising Prices’ feature (29 April), the Fed has said it would be willing swallow spells of higher inflation as it takes a longer-term view on policy that it has done previously, and many experts believe that this will gradually filter through into the thinking of investors.

DISCLAIMER: The author owns shares in Scottish Mortgage, Allianz Technology and Polar Capital Technology

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Issue Date: 11 May 2021