Tech shares fall as investors look past Omicron disruption

Global technology stocks were under pressure on Wednesday as fading concerns about the Omicron coronavirus variant and bets on interest rate rises lowered the appeal of groups that have prospered throughout the pandemic.

On Wall Street, the technology-heavy Nasdaq Composite share gauge fell 0.6 per cent, having closed 1.3 per cent lower in the prior session. The broader-based S&P 500 equity index slipped 0.2 per cent, while the S&P’s information technology sub-index dropped 1 per cent.

Chinese technology groups traded on Hong Kong’s Hang Seng index dropped 4.6 per cent, in their worst fall since July.

Tech stocks have started 2022 on the back foot after early data suggested Omicron was less likely than previous strains to result in hospitalisations and therefore widespread lockdowns.

This burst of optimism has boosted shares in businesses such as banks and energy producers whose fortunes are linked to economic growth, while cementing expectations of the US Federal Reserve raising interest rates in a move that would pressure the valuations of highly valued growth stocks.

“The Omicron variant seems fairly mild, with surging cases not resulting in higher fatalities, raising hopes that the end of the pandemic is in sight,” said Emmanuel Cau, head of European equity strategy at Barclays.

US big tech groups including Apple, Microsoft and Google owner Alphabet have been among the biggest publicly traded winners of the pandemic, measured by growth in market capitalisation in dollar terms since January 2020, according to a Financial Times study.

“The acceleration of [tech] earnings growth is now behind us,” said Jim Besaw of US wealth manager Gentrust, despite “eye-popping valuations”.

In Europe, the Stoxx 600 equity gauge was steady while its tech sub-index fell 0.7 per cent. ASML, the Dutch semiconductor equipment maker and Europe’s largest tech company by market capitalisation, lost 1.2 per cent following a fall of almost 3 per cent on Tuesday.

While tech groups’ prospects have been boosted by lockdowns and other social restrictions, their valuations have also been flattered by ultra-low bond yields that reduce the opportunity cost of owning growth companies that pay minimal or no dividends.

Traders have also this week backed out of US Treasuries, the haven assets favoured in times of economic uncertainty, lowering prices of the debt instruments and pushing their yields higher.

Officials at the US Federal Reserve, which is winding down its pandemic-era monetary stimulus, expect the central bank to raise interest rates three times in 2022, according to projections published late last year.

The yield on the benchmark 10-year US Treasury, which moves inversely to the price of the debt, inched 0.02 percentage points lower to 1.651 per cent on Wednesday but has climbed from about 1.5 per cent on December 31.

“Even if global equities give a reasonable return this year, the US market will struggle,” said Paul Jackson, head of asset allocation at Invesco.

The FANG+ index of 10 widely traded US tech stocks makes up more a quarter of the S&P’s market capitalisation, according to Bloomberg data.

Because of the dominance of big tech companies in the index, Jackson added, the S&P had “become a market that outperforms during economic downswings”.

Elsewhere in markets, the UK’s FTSE 100 rose 0.2 per cent after gaining 1.6 per cent on Tuesday, thanks to its high concentration of banking, energy and resources businesses. Germany’s Dax advanced 0.6 per cent, boosted by consumer and industrial stocks.

Brent crude rose 1.4 per cent to $81.11 a barrel. The oil benchmark dropped as low as $69.28 in late December, depressed by Omicron concerns.