October 24, 2018 / 8:36 AM / 2 months ago

Worries on demand, profit outlook and trade dent global tech shares

(Reuters) - Global tech stocks have lost about $1 trillion or 9 percent of market value this month, Refinitiv data showed, hurt by worries over slowing global demand, valuations and trade tensions between the United States and China.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., October 23, 2018. REUTERS/Brendan McDermid/File Photo

The losses were also exacerbated by a rise in U.S. yields, which shot up to a near 7-1/2 year high this month and prompted investors to leave risky sectors and move into higher yielding bonds.

An analysis of 1,701 global technology firms - each with a market value of more than $100 million - showed that their combined market value was down to about $10.58 trillion on Oct. 23 from $11.64 trillion on Oct. 1.

(Graphic: Tech stock's decline in market value during sell-offs - tmsnrt.rs/2O11Uxx)

However, the erosion in value pales in relation to the rapid run-up in these share prices over the past few years. Combined market capitalization of these stocks had doubled since 2013, leading the rise in major global stock indices.

In particular, combined capitalization of U.S. tech giants Facebook, Apple Inc., Amazon, Netflix and Alphabet’s Google, popularly known as the FAANG stocks, had increased 3.5 times until this month’s sell-off.

(Graphic: Sector contribution to MSCI World's decline this month - tmsnrt.rs/2OL8FZD)

Compared to sell-offs earlier this year, this month’s fall was bigger, indicating worsening sentiment about the sector, with investors bracing for further declines.

It has been one of the hardest hit by the tit-for-tat tariffs United States and China have imposed since March. Chinese tech firms have underperformed the broader mainland stock market.

Goldman Sachs said in a report last week that technology stocks, perennial favorites with hedge funds and mutual funds, had returned 86 percent since 2015 versus 42 percent for the broader S&P 500.

“But investors’ concerns about crowded positioning and stretched valuations have resurfaced following the sell-off,” it said.

Despite the sell-off this month, the technology sector’s forward 12-month P/E stands at 16.5, significantly above the rest of the sector’s average of 12.9, according to Refinitiv.

(Graphic: Tech sector valuations - tmsnrt.rs/2O0ZSNV)

Tech shares were bolstered by strong earnings growth over the past few quarters, but recently analysts are turning more cautious due to slowing demand for tech products and the Washington-Beijing trade tensions.

Over the past month, analysts have cut their forward 12-month profit forecasts for tech firms by 3.06 percent, data from Refinitiv showed.

(Graphic: Sector-wise change in analyst estimates (global) - tmsnrt.rs/2OLCDfY)

“We expect the trade war to intensify and demand in fourth quarter to slow down in sectors such as semiconductors, ODMs, Automation, memory, smartphones and servers,” Macquarie said in a report this month.

Tech shares have seen steep falls in their market value across the world, led by U.S., China, and Hong Kong firms.

Alphabet Inc, Alibaba , Microsoft Corp and Tencent Holdings were the biggest losers among the 1,701 firms analyzed.

(Graphic: FAANG and BAT's market cap - tmsnrt.rs/2O2nstm)

(Graphic: Technology firms' P/E ratios - tmsnrt.rs/2OLNPcr)

Reporting By Patturaja Murugaboopathy and Gaurav Dogra; Editing by Vidya Ranganathan and Richard Borsuk

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