In today’s top stories, tech’s downturn has attracted rebound calls from market experts, who see the sector prime to rally if fundamentals improve. Biotech stocks have been named a buy, while software firms could attract takeover offers. Investors are also looking towards emerging markets and ESG funds are stuck in a downtrend.
Tech poised to rally
With the Nasdaq trading 30% off its highs, Chris Watling, Longview Economics CEO, believes it needs one bit of good news to set off to the races. “It should rally quite hard, and it should outperform,” he told CNBC’s Street Signs Europe last week. Neil Campling, head of technology at Mirabaud, told investors that if the sector does rally they should consider software vendors that help companies manage their costs. Campling named ServiceNow [NOW], Workday [WDAY] and Qualys [QLYS] as his picks.
Enterprise software M&A
Multiples of tech stocks have tumbled, which has made some companies attractive acquisition targets. RBC analyst Rishi Jaluria told CNBC that he can see Dropbox [DBX] being bought by Adobe [ADBE] or Salesforce [CRM]. New Relic [NEWR] and Coupa Software [COUP] could also pique the interest of private equity firms. “The regulatory bodies do not seem to care as much about enterprise software as they do about consumer technology,” said Jaluria.
Emerging markets play
Money managers are cautiously dipping their toes back into emerging markets. “We have reduced our bearishness on the asset class,” Fidelity International’s Paul Greer told Bloomberg, adding that although there are challenging fundamentals at play, there are valuations that shouldn’t be overlooked. At Shenzhen Qianhai JianHong Times Asset Management Co, portfolio manager Zhao Yuanyuan has turned bearish on mainland Chinese equities, having returned 138% year-to-date by hedging risks.
Biotech stocks have gone from darlings of the pandemic to being in a bloodbath. For example, Global X Genomics and Biotechnology ETF [GNOM] is down 39% since the start of the year. Contrarian investors are saying that the theme is now a ‘buy’. Macro analyst Larry McDonald, founder of The Bear Traps Reports, said that “the risk-reward is fantastic”. Jefferies’ Michael Yee disagrees: “It will take a lot of time to heal these wounds,” he said.
ESG dragged down
The rout in tech stocks has another casualty in ESG funds. The Vanguard FTSE Social Index [VFTAX] is down 22% since the start of the year. Not a surprise considering Apple [AAPL], Microsoft [MSFT] and Amazon [AMZN] are its top three holdings. Amin Rajan, CEO of thinktank CREATE-Research, told the Financial Times that ESG has been “piggybacking on technology companies’ outsized gains”.
Data centre sales are very likely to beat gaming sales when Nvidia [NVDA] reports its Q1 2023 earnings on 25 May. It has happened once before – in Q2 2021 – due to a surging demand for server chips. However, this time around Susquehanna analyst Christopher Rolland believes entertainment reopenings have slowed videogame chip growth. The company expects to book a $1.36bn charge for its failed Arm [ARM] acquisition.
The UK-listed energy supplier [SSE.L] has seen its share price jump 17.8% in the year-to-date to close at 1,912.5p on 20 May. Fuelling the rise is the company’s upgraded guidance for its upcoming full-year 2022 results, which it revised after its gas and hydroelectric plants benefitted from a sharp hike in energy prices following the start of the Russia-Ukraine war.
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