Reinforce Constructive Stance on Big Tech
Technology stocks’ stellar performance. Global technology sector kick-started the year with a strong +15% YTD performance, significantly outperforming global equities (+8% YTD). This is an enc...
Chief Investment Office - Hong Kong6 Feb 2023
Article image
Photo credit: AFP Photo
Read More

Technology stocks’ stellar performance. Global technology sector kick-started the year with a strong +15% YTD performance, significantly outperforming global equities (+8% YTD). This is an encouraging showing by all accounts after a turbulent 2022, which saw the sector correct some 30% due to a ‘perfect storm’ of headwinds: 425 bps of Fed rate hikes, high inflation, elevated energy prices, the Russia-Ukraine war, supply chain disruptions, and an impending global slowdown.

Investors are looking past current headwinds. . In spite of the headwinds and perception of earnings weakness, technology firms have, against the odds, delivered promising results. Based on the list of S&P technology firms that have reported earnings, c.80% delivered better-than-expected results and only 18% were below. An improvement from 75% and 18% reported in the prior season, respectively.

Judging from the recent share price performances, it would appear that the challenges of 2022 have entered the rearview mirror as investors are gradually looking past them and forward to a better 2023 where technology firms’ operating and financial metrics are expected to recover.

Optimistic long-term outlook. While tech leaders have reported a mixed bag of earnings in their recent result announcements, their management teams have generally guided for an optimistic outlook (Table 1) driven by the bottoming in end-demand, resilient pricing power, staff size rationalisation, China reopening, and recovery in profitability.

Figure 1: Tech stocks trading at historically attractive valuations
Source: Bloomberg, DBS

Table 1: Weak earnings did not deter share price rebound
Source: Bloomberg, DBS
As at 3 Feb 2023

Additional catalyst from valuation support. Global technology is presently trading at forward price-to-earnings ratio of 22x (Figure 1), on par with -1 standard deviation to mean. Similarly, the sector’s price-to-book ratio of 5x is at the lower half of historical range. With a projected 20% forward earnings growth expected in 2024, there is attractive value and further upside for multiple expansion once investors start to appreciate the sector’s fundamentals.

Remain constructive on global technology and stay engaged. . The technology sector fits in well with the growth side of the CIO Barbell Strategy and forms the core construct in the I.D.E.A. Strategy. To reiterate, both the CIO Barbell and I.D.E.A. Strategies have done well on a YTD basis and outperformed their respective benchmark indices (refer to recent CIO Perspectives dated 1 February).

With the backing of solid fundamentals and in anticipation of sustained earnings recovery, we reinforce our constructive stance on the technology sector along with investment themes surrounding Big Tech and digital transformation: cloud, IC design, data analytics, EV, online content, high-performance computing, cyber security, and semiconductor equipment.



This information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.  This publication is intended for DBS Bank and its subsidiaries or affiliates (collectively “DBS”) and clients to whom it has been delivered and may not be reproduced, transmitted or communicated to any other person without the prior written permission of DBS Bank. 

This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.

The information herein may be incomplete or condensed and it may not include a number of terms and provisions nor does it identify or define all or any of the risks associated to any actual transaction. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The information herein may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof.

All figures and amounts stated are for illustration purposes only and shall not bind DBS Group. This publication does not have regard to the specific investment objectives, financial situation or particular needs of any specific person. Before entering into any transaction to purchase any product mentioned in this publication, you should take steps to ensure that you understand the transaction and has made an independent assessment of the appropriateness of the transaction in light of your own objectives and circumstances. In particular, you should read all the relevant documentation pertaining to the product and may wish to seek advice from a financial or other professional adviser or make such independent investigations as you consider necessary or appropriate for such purposes. If you choose not to do so, you should consider carefully whether any product mentioned in this publication is suitable for you.  DBS Group does not act as an adviser and assumes no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from any arrangement or entrance into any transaction in reliance on the information contained herein.  In order to build your own independent analysis of any transaction and its consequences, you should consult your own independent financial, accounting, tax, legal or other competent professional advisors as you deem appropriate to ensure that any assessment you make is suitable for you in light of your own financial, accounting, tax, and legal constraints and objectives without relying in any way on DBS Group or any position which DBS Group might have expressed in this document or orally to you in the discussion.

Any information relating to past performance, or any future forecast based on past performance or other assumptions, is not necessarily a reliable indicator of future results.

If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of the Information, which may arise as a result of electronic transmission. If verification is required, please request for a hard-copy version.

This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

If you have received this communication by email, please do not distribute or copy this email. If you believe that you have received this e-mail in error, please inform the sender or contact us immediately. DBS Group reserves the right to monitor and record electronic and telephone communications made by or to its personnel for regulatory or operational purposes. The security, accuracy and timeliness of electronic communications cannot be assured.