LONDON, June 12 The sharpest selloff in European
technology stocks since the aftermath of last year's Brexit
referendum has underscored investors' concerns about rich
valuations across sectors in markets most sensitive to economic
Europe's tech stocks fell 3.5 percent, knocked by a
similar slide on Wall Street on Friday. Apple shares, a
bellwether for the sector, were down more than 2 percent in U.S.
pre-market trading on Monday, suggesting more weakness ahead.
Chipmakers, which supply to Apple and other smartphone
companies, bore the brunt of the selloff in Europe. Shares of
STMicro fell 8 percent while Dialog Semi
slumped more than 5 percent.
Brokers including Morgan Stanley, Credit Suisse and JP
Morgan have stepped up warnings in recent weeks on how much
further the rally in cyclical stocks -- or those most geared to
economic growth, such as banks, industrials and technology --
has to run.
Morgan Stanley downgraded its view on the European tech
sector to "underweight" last week citing valuations, while
Goldman Sachs published a similarly cautious view on U.S. tech
stocks last Friday.
The selloff, which began in earnest on Wall Street, where
shares of Amazon, Facebook and Alphabet along with Apple took a
hammering on Friday, has spread to Asia and Europe sparking
fears of broader market weakness.
"This is the nature of the tech sector. Valuations do from
time to time become very stretched and they come back and anyone
who has paid a very high valuation might experience some
short-term pain," said Fergus Shaw, fund manager at Cerno
In Europe, the regional tech index was up 24 percent before
Monday's slide and finished last week at its highest level in 15
years, easily outpacing other sectors.
Those gains have lifted stock valuations to their highest
At 21 times forward earnings, they remain well short of the
dizzying heights reached during the dotcom boom and bust when
valuations hit more than 70 times.
But the ensuing crash still haunts investors in the sector.
With the year's best performing sector off sharply there are
worries that weakness could spread to other economically
sensitive stocks where resurgent investor interest has also
pushed up valuations.
Morgan Stanley strategists said last week that cyclical
stocks' weighting in the MSCI Europe index was at a 20-year
high, and a couple of percentage points of their tech-bubble
They recommended investors switch into dividend-paying
sectors such as real estate and telecoms which have been out of
favour so far this year.