Live Markets: Tech correction may be losing steam in Japan, says Citi

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TECH CORRECTION MAY BE LOSING STEAM IN JAPAN, SAYS CITI
Japanese tech stocks may be nearing the end of their recent pullback, with Citi arguing that the broader market's resilience points to a healthy correction rather than the start of a deeper downturn.
The Nikkei .N225 has fallen as much as 17% from its late-June highs as investors took profits in technology names, but the selloff has not spread. 
The bank notes how high-beta sectors such as banks and autos have continued to perform well, helping the broader TOPIX .TOPX move sideways.
That distinction is important, Citi strategist Ryota Sakagami says, because it suggests investors have not moved into a classic risk-off mode.
"While the Nikkei has corrected significantly, led by tech stocks, TOPIX has remained resilient," Sakagami writes, adding that limited flows into defensive sectors "confirmed the strength of the Japanese equity market".
He argues that several valuation indicators for Japanese tech stocks are now at levels that in the past have coincided with market reversals. 
At the same time, concerns over a slowdown in hyperscaler spending on AI infrastructure are not yet being reflected in key demand indicators such as global semiconductor sales.
Citi sees the recent weakness as an adjustment rather than the start of an earnings downturn.
"Absent major changes to fundamentals, we expect tech-related stocks to again lead the market in the second half," Sakagami said. 

(Danilo Masoni)
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