Technology Sector Still Witnessing The Impact: How Long It Would Prevail?

  • Oct 15, 2018 AEDT
  • Team Kalkine
Technology Sector Still Witnessing The Impact: How Long It Would Prevail?

The global markets experienced a sell-off in the past week thanks to increased yield on the debt-related products. However, some relaxation from the oil front was also witnessed. The prices managed to somewhat stabilize themselves primarily because of the higher inventories reported by the United States. The strengthening US economy has been prompting the Federal Reserve to remain hawkish on the monetary policy and hence they have planned for quantitative tightening. However, with increased interest rates, the US dollar also appreciates, and the impact is also felt on the emerging economies.

However, amidst the global sell-off, the technology sector has been also adversely impacted. The FAANG or Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL) Netflix (NASDAQ: NFLX) and Google (NASDAQ: GOOGL) are stocks which have been the leaders in the downtrend. The technology sector in the United States has been getting a hit primarily because of the increased trade tensions between the US and China. However, higher interest rates are also a major reason for the sell-off. In addition, the tech sector has been on the list of the sellers primarily because the investors are now worrying that their higher valuations might not be justified due to the global sell-off. However, some market players also view that this deep correction might also be a buying opportunity as when the market rises, these FAANG stocks are expected to recover sharply. The market participants have been using the technology stocks to hedge their losses which they have been incurring because of the strong downtrend in the markets. 

According to Airlie Funds Management’s portfolio manager, Emma Goodsell, the technology sector in the US is also not in the good shape. She sees that there is some sort of disconnection between earnings prospects as well as the share prices of the Australian technology stocks. There are certain companies like Appen Limited (ASX: APX), WiseTech Global Limited (ASX: WTC) and Afterpay Touch Group Limited (ASX: APT) on which investors have been relying thereby pushing the firms to the higher levels. The investors have been counting on them primarily because they are optimistic about their long-term growth potential and expect that they might experience favorable momentum in the earnings moving forward.

According to Emma Goodsell, when the stock prices or the expected performance of a particular stock is not supported by the fundamentals, it might experience the downtrend sooner or later. Even today i.e. October 15, 2018, the technology sector of Australia have been showcasing the weaker performance. At the time of writing, NEXTDC Limited’s (ASX: NXT) stock traded at A$6.060 which implies the fall of A$0.190 or 3.04% and the company has a market capitalization of $2.15 billion. Other stocks like Afterpay Touch have witnessed an intraday decline of 6.644% and Altium Limited (ASX: ALU) witnessed the fall of 3.297%.

Bottomline, it would not be wrong to say that the global markets have been witnessing the significant downtrend and the technology sector have been getting adversely affected. Moreover, the emerging economies have also been witnessing a hit lately.

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