Ride the secular uptrend in Technology with I.D.E.A.
Ride the secular uptrend in Technology with I.D.E.A.
Technology outperformance over “vaccine discovery” proxies panned out as expected amid falling bond yields. In our CIO Perspectives – Rotation Fatigue: Global Technology poised to regain market leadership published on 23 April this year, we advised investors to curb their enthusiasm on vaccine-related rotational in the face of resurging Covid-19 cases and slow vaccine rollouts. We said Technology stocks are poised to regain cyclical leadership as bond yields falter.
Our call has panned out. Since 23 April, the Technology-heavy Nasdaq Index has outperformed US small caps (proxy for vaccine discovery theme) by 8.8 %pts. This has been aided no less by the 38 bps decline in US Treasury (UST) 10Y yield from 1.56% to 1.18%, prompting a rotation to high growth sectors like Technology.
Strong earnings momentum to propel Technology sector higher. We expect the Technology sector to maintain its momentum in the remaining half of 2021. However, the bigger driver this time is corporate earnings as opposed to falling bond yields:
- At current levels, the UST 10Y yield is substantially below its fair value of 1.6-1.7% and therefore, further pullback is unlikely. But even in the event that the 10Y yield reverts to its fair value in coming months, the up-move will not pose as a headwind for Technology stocks, in our view.
- In the ongoing US earnings season, Technology registered the highest earnings surprise of 95% while the proportion of Tech companies seeing positive earnings growth is also robust at 97%. These results underline the resilience of the sector despite the pandemic. On a full-year basis, Technology is forecasted to register earnings growth of 46%.
Pick Technology winners using the I.D.E.A. framework. In our CIO Vantage Point – I.D.E.A. published in July 2021, we introduced the I.D.E.A. (an acronym which stands for Innovators, Disruptors, Enablers, and Adapters) framework for picking winners that can successfully navigate global digital disruption.
In a fast-changing world, companies that are deemed as “blue chips” today may possibly turn out to be laggards tomorrow. Therefore, in our stock selection process, we look for companies demonstrating the following traits:
- Operating in a Growth industry and is innovative enough to disrupt and gain further market share.
- Operating in a mature industry, but the management is forward thinking enough to reinvent itself.
- Display strong historical track record of jumping through multiple financial S-Curves through the years of operation.
Source: Bloomberg, DBS
The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.
The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.
The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.
DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.
To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.
The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.