Tokyo Shares Retreat as Tech Sector Stumbles
Japan's primary stock index, the Nikkei, experienced a significant decline on Friday, mirroring overnight losses on Wall Street. The drop was primarily fueled by growing investor apprehension concerning the elevated valuations of technology stocks, particularly those linked to the artificial intelligence sector.
Key Market Movements and Figures
The Nikkei share average plunged by as much as 2% during early trading. However, it managed to pare some of those losses as the session progressed, eventually closing 1.3% lower at 50,630.91. The broader Topix index also finished in negative territory, declining by 0.7% to 3,358.51.
Leading the market downturn were prominent AI-focused companies. Advantest, a major manufacturer of chip-testing equipment, saw its shares fall by 3.5%. SoftBank Group, a key investor in technology startups, dipped by 4.2%, while chip-making tool giant Tokyo Electron shed 4% of its value.
The sell-off also impacted stocks associated with data centre expansion. Industrial conglomerate Hitachi retreated by 4.3%, and Fujikura declined by 4.7%.
Profit-Taking and Sector Rotation in Play
According to Fumika Shimizu, a strategist at Nomura Securities, the market movement indicates investors are capitalizing on recent gains. "It looks like investors are taking profits on these AI-related stocks," she stated, highlighting simmering worries about stretched valuations.
Shimizu added that this activity is part of a broader market shift. "We are seeing a bit of sector rotation," she explained, noting that money is flowing into companies that have announced strong financial results for the season.
This rotation was evident in the day's top performers. TOPPAN Holdings, a paper company, jumped an impressive 9.7% following its robust earnings report. Similarly, property developer Tokyo Tatemono climbed 7.5%, making them the two biggest percentage gainers on the Nikkei.
Investor attention is also turning to Japan's banking sector, with megabanks like Mizuho Financial Group, Mitsubishi UFJ Financial Group, and Sumitomo Mitsui Financial Group set to report their results later in the day. All three stocks traded slightly higher ahead of the announcements.
Despite the overall index decline, market breadth was positive. A majority of the Nikkei's 225 components advanced, with 135 gainers outweighing 87 decliners, while three stocks ended the day flat.
Weekly Performance and Upcoming Catalyst
For the week, the Nikkei still managed to post a 0.8% gain. This was largely supported by a 1.3% rally on Monday, which helped the index recover a portion of the more than 4% slide experienced the previous week, a drop that was also driven by tech valuation concerns.
Market participants are now looking ahead to a potential flashpoint next week. The focus will be squarely on Nvidia, a global AI bellwether, which is scheduled to report its earnings on Wednesday. This event is highly anticipated and could significantly influence the direction of tech stocks worldwide.
