Asia stocks set to fall as Meta drags on big tech

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asian equity markets dropped after Meta Platforms Inc.’s disappointing outlook raised concern on whether the industry that has powered the bull market in equities has run too far.

Equity benchmarks dropped in Japan and South Korea, while futures for Hong Kong also declined. Australian financial markets are shut for a holiday. The yen traded in a narrow range after weakening beyond 155 per dollar for the first time in more than three decades on Wednesday, heightening the chances of intervention.

A $250 billion exchange-traded fund tracking the Nasdaq 100 got hit after the close of regular US trading as the Facebook parent tumbled more than 15%. Meta projected second-quarter sales that were below analyst expectations and increased its spending estimates for the year.

“Meta’s resources are vast, but not infinite,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown Plc. “The language around spending plans has become bolder once more, and this could be what’s spooking markets.”

In the run-up to the results, the S&P 500 struggled to gain traction, hovering near 5,070 as traders positioned for economic data that will help shape the views on the Federal Reserve’s next steps. Treasuries opened little changed in Asia after yields rose on Wednesday.

In Japan, the yen depreciated to as low as 155.37 per dollar on Wednesday, marking the first time since June 1990 the currency had crossed the 155 level. Traders will be alert to any comments from officials in Tokyo on Thursday that suggest a higher state of readiness for intervention.

Japan’s weak currency is a “big problem,” Japan Airlines Co. Chief Executive Officer Mitsuko Tottori said in a group interview, adding that a stronger rate than the current level of around ¥155 to the dollar would be better.

South Korea’s SK Hynix Inc. said it expects a full recovery in the memory market after AI demand spurred the chipmaker to log its fastest pace of revenue expansion since at least 2010.

Elsewhere, oil held a modest decline, with a risk-off tone in broader markets countering a drawdown in US stockpiles. Gold was little changed.

Earnings Unfolding

The Facebook parent reported revenue of $36.5 billion in the first quarter, an increase of more than 27% over the same period a year ago. It was a small beat, as analysts were looking for revenue of $36.1 billion on average, according to estimates compiled by Bloomberg. Profit more than doubled to $12.4 billion.

“We encourage investors to focus on the positives,” said Tejas Dessai at Global X ETFs. “The company’s fundamentals continue to show strength, and that’s the key story.”

To Mark Hackett at Nationwide, while the cohort of seven tech megacaps has done well in the last two years because of their superior earnings growth relative to the broader market, this advantage could decrease in 2024 and even more significantly in 2025.

“The ‘Magnificent Seven’ are not nearly as powerful as they once were,” Hackett said. “We see this as a positive development for investors looking to diversify away from the recent market leaders.”

For weeks, traders have been scaling back how many rate cuts they expect from the Fed amid a string of resilient economic data. Economists surveyed by Bloomberg predict gross domestic product likely cooled to around 2.5% in the first quarter, with the figures still potentially suggesting persistent inflationary pressures.

“Tomorrow’s pivotal GDP report comes as market participants hope for a soft number that would lead to rate cuts sooner rather than later,” said Jose Torres at Interactive Brokers. “We expect a stronger-than-projected figure. It would be great for revenue growth prospects, but bad for the timing and extent of rate cuts.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow