Investors buying the dip as Wall Street rout makes stocks cheaper
Investors are lining up to buy the dip as fears over the risks of a US recession have knocked mega cap stocks, making them cheaper and more attractive to buy.
Artificial intelligence (AI) darling Nvidia (NVDA) tumbled more than 9% through Tuesday’s session in the biggest one-day market capitalisation drop in US history, amid a broader pullback in semiconductor stocks. Nvidia lost $270bn (£205bn) in a single day, sparking a wave of selling in chip stocks.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘’Fresh worries about the health of the global economy have gripped markets, with the FTSE 100 (^FTSE) far from immune given the international leaning of the index. London-listed stocks are set for another downbeat session, after deep concerns rippled out from Wall Street over the risks of an American recession."
Dutch chip firm ASML (ASML) was down more than 6% on Wednesday and AMD (AMD) plunged over 7%.
However, as some traders are selling stocks to cut losses, others are seeing an opportunity to buy at a discount amid market panic.
Jung In Yun, chief executive officer at Fibonacci Asset Management in Singapore, told Bloomberg: “Although we expect the volatility spike to revisit more often for some time in the future, we maintain our view that each selloff is a buying opportunity. In this regard, we expect to see the broad equity market in Asia rising very quickly, once again.
Read more: FTSE 100 LIVE: European stocks slump as Wall Street market rout spooks investors
“The concern for peak in demand for AI is exaggerated in our view. We will likely see the demand for AI as well as its supporting infrastructure remaining robust throughout the first half of next year.”
However, not everyone is confident about buying the dip, fearing that it could turn into catching a falling knife.
"Investors appear wary of buying the dip, ahead of this week’s US employment data, which culminates on Friday with the latest non-farm payroll release," David Morrison, senior market analyst at Trade Nation, said.
Still, there are also a number of catalysts ahead that should prompt share prices to bounce back, as central bankers are expected to deliver on rate cuts. The US Federal Reserve, European Central Bank (ECB) and the Bank of England are all set to announce their policy decisions later this month.
Fed chair Jerome Powell has said the “time has come” for the Fed to cut rates.
Read more: UK investors flock to Nvidia and passive funds in August
In the UK, investors sought to take advantage of the dip in August, figures from Calastone showed.
Equity fund inflows fell to £535m in August, a 75% drop compared to the previous month and the lowest level since November 2023, the latest fund flow index by Calastone revealed.
A panic sell-off on 5 August rocked the funds industry as investors pulled £206m out of the market, then bought the dip in the next five days, adding net £592m to equity funds during that period.
When markets bounced back later in August, some investors chose to take profits with outflows in the second half of the month.
"Investors flinched when global markets convulsed in early August," said Edward Glyn, head of global markets at Calastone. "Outflows turned to inflows as markets calmed and sellers melted away, but nerves have clearly been rattled."
Global stocks were hit by heavy selling early in August on weak US economic data and a surprise Bank of Japan rate hike, causing a Black Monday in Tokyo.
Richard Hunter, head of markets at Interactive Investor, said: “August started shakily and ended strongly, providing some buying opportunities as the month progressed either to add to holdings or to buy on the dip, and ii [Interactive Investor] customers took full advantage."
Market rout was felt across most equity fund sectors, with inflows down by just over a third (-35%) for global equity funds to £639m, by half (-50%) for North American equity funds to £564m, and by just under three fifths (-58%) for European funds to £155m and similarly for emerging market funds (-59%) to £174m.
Meanwhile, Asia-Pacific funds suffered a sixteenth consecutive month of outflows, which almost quadrupled (+260%) month-on-month to -£184m.
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