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European tech shares drop after US sell-off and Fed warning

European equities dropped on Thursday, continuing a global sell-off that began after investors retreated from stocks that had benefited from the pandemic as fears over the Omicron variant’s economic impact receded.

The regional Stoxx 600 index dropped 1.2 per cent. The Stoxx’s technology sub-index fell 2 per cent. London’s FTSE 100 share gauge fell 1 per cent.

The moves followed declines in Asian technology shares. Hong Kong’s Hang Seng Tech index fell as much as 1.7 per cent on Thursday after dropping 4.6 per cent the previous day, its biggest one-day drop since July. But the gauge had moved 1.4 per cent higher by afternoon trading in the region.

The city’s broader benchmark Hang Seng index lost as much as 0.9 per cent during morning trading, but was up 0.7 per cent by the late afternoon.

Meanwhile, futures markets indicated that Wall Street equities were on track for a flat open.

Those drops followed falls in US markets on Wednesday, as investors dumped shares in technology companies that had surged during the pandemic.

The shift has been driven by waning concern over the economic impact of the Omicron virus variant, with investors refocusing on the prospect of interest rate increases. The US Federal Reserve minutes released on Wednesday said the central bank might raise interest rates “sooner or at a faster pace” than officials had anticipated to combat rising inflation.

The falls were led by the tech-heavy Nasdaq Composite index, which closed 3.3 per cent lower, its worst day since February 2021, and a sell-off in US Treasury notes.

With yields on US government debt climbing, the appeal of many unprofitable companies, including some that had only recently gone public, has taken a knock. Their valuations are dependent on potential future earnings and sensitive to rising rates.

The yield on the US 10-year Treasury increased 0.02 percentage points to 1.73 per cent on Thursday, adding to gains since the start of the year.

The early Hong Kong declines were led by tech and healthcare stocks, with GDS Holdings, a Chinese data centre operator, shedding as much as 7.8 per cent, and BYD Electronic, a manufacturer of mobile phone components, dropping as much as 9.8 per cent.

Other laggards in Hong Kong included video platforms Kuaishou and Bilibili and online health companies JD Health and Alibaba Health Information Technology.

The sell-off followed a punishing year for Chinese tech stocks, with the Hang Seng Tech index down by almost a third in 2021 after Beijing launched a wide-ranging regulatory crackdown.

Shares in Huarong, the Chinese bad debt manager that received a $6.6bn state-orchestrated bailout last year, fell as much as 25.5 per cent after halving in value on Wednesday, its first day of trading following a nine-month suspension.

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