The Great Rotation: European tech in biggest monthly decline in 13 years

A person wears virtual reality glasses at the European Space Agency (ESA) booth at Web Summit, Europe’s largest technology conference, in Lisbon, Portugal November 2, 2021. REUTERS/Pedro Nunes

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LONDON, Jan 28 (Reuters) – European tech stocks fell into bear territory on Friday and were on course for their biggest monthly decline since the 2008 global financial crisis amid fears that the US Federal Reserve will aggressively tighten monetary policy.

The European technology sector (.SX8P), the darling of investors during the pandemic, is down 20% – the technical milestone that defines a bear market – from a 21-year high hit in November.

It was also on track for its worst month since September 2008, slipping more than 15% in January.

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European sectors in 2022

European technology moved in tandem with the Nasdaq (.NDX) index in the United States in January, which also posted its worst month in more than 13 years.

Global technology stocks came under pressure as rising yields made investors more reluctant to pay high valuations for growth stocks as the Fed plans to hike rates and end asset purchases in March to tame inflation. Continue reading

Rising tensions between Russia and the United States over Ukraine also pushed investors toward safer assets. Continue reading

“Rising real yields and good economic growth should continue to support value versus growth,” Morgan Stanley analysts said in a research note.

So-called value stocks that trade at comparatively cheap multiples of their fundamentals — including banks, autos and energy stocks — have surged in popularity this year, outperforming growth stocks by 13 percentage points in January. Continue reading

European value vs. growth

A survey by Deutsche Bank found that half of the 500 investors who took part believed that valuations of technology stocks in the United States were in bubble territory.

However, some investors see recent price weakness as making tech stocks an attractive buy.

Jeremy Leung, portfolio manager at UBS Asset Management, said he bought the tech dip in January.

“We actually took advantage of weakness in big tech stocks as well,” he said, adding that the tech pullback was an opportunity to buy stocks that had become overpriced during the pandemic.

Earnings should also be supportive.

The estimated earnings growth rate of the STOXX 600 technology companies for the fourth quarter of 2021 is expected to be almost 40% higher year-on-year, totaling €10.5 billion.

Switzerland’s Logitech International (LOGN.S), for example, raised its earnings guidance for the current fiscal year as offices began to re-equip for employees returning home from work. Continue reading

German enterprise software group SAP (SAPG.DE) said there was scope to surpass its 2025 free cash flow target of around 8 billion euros ($8.92 billion).

IPO activity in the tech space is expected to remain strong through 2022, said Conor Moore, head of KPMG Private Enterprise, which tracks venture capital and tech IPOs.

“Will ratings be as high as they have been in parts of 2021? Maybe not,” he said. There will be “a small slowdown, but I don’t think it’s a dramatic slowdown,” Moore added.

($1 = 0.8971 euros)

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Reporting by Joice Alves, additional reporting by Julien Ponthus; Edited by Saikat Chatterjee and Jane Merriman

Our standards: The Thomson Reuters Trust Principles.

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