Australian investors have fear in their eyes as Wall Street technology stocks correct

A blow off in absurd prices for technology favourites such as Apple or Afterpay would be welcomed by most serious investors. Picture: AFP)

Like watching a pile-up ahead on the motorway, Australian investors are viewing Wall Street’s technology stocks correction with fear in their eyes.

It’s not whether tech stocks will create trader losses. It’s whether a collapse in technology stock prices will bring trouble for everyone.

A blow off in absurd prices for technology favourites such as Apple or Afterpay would actually be welcomed by most serious investors, the risk is that you can’t have a compartmentalised crash.

With only a handful of hot stocks holding up both Wall Street and the ASX, this is a clear and present danger.

The tech-laden NASDAQ has now had a full 10 per cent plus correction and the chance of a deeper downturn remains on the cards.

Certainly that is the clear pointer from the volatility index - the VIX - which rose over August and early September as US markets climbed ever higher.

This is not supposed to happen. Generally, the VIX rises when markets are declining rapidly.

But for now, at least, this looks like a rational correction triggered by a sudden combination of technical issues.

Among those issues: a run up in FAANG (Facebook, Apple, Amazon, Netflix and Google) prices, particularly the doubling of the share price in Apple; a high profile options trade from Japan’s SoftBank which appears to have backfired; and the snubbing of Tesla for inclusion in the S&P 500 index despite the electric car maker fulfilling all the index requirements.

As JPMorgan’s global market strategist Kerry Craig puts it: “The broad pillars of equity support remain in place.”

In any sell-off faced by this market, the traffic closest to the pile up is the new wave of sharemarket investors - the “Robinhood generation” which swarmed into Wall Street and the ASX in the first wave of bargain hunting back in April and May.

At the very back of the line - so far from the battlefront you might say they are safe in barracks - are conservative investors with strong cash holdings typified by the Future Fund with 17 per cent of all assets in cash and private market funds such as Magellan Global Equities Fund which has 15 per cent in cash. In contrast, many funds can have as little as 5 per cent cash at any given time.

More broadly, the Australian response to Wall Street’s Labour Day weekend woes were restrained in Tuesday’s session which only saw a 2.2 per cent fall - against a 2.8 per cent fall in the Dow. Moreover, the ASX actually pipped higher on Monday up 1.1 per cent.

Nonetheless, at an S&P/ASX 200 level of 5878 we are now back to where we were in June.

In terms of specific action, technology stocks got away lightly. Afterpay our bellwether tech play only fell 1.3 per cent, which is a blip on the screen for this very volatile stock.

In fact, the majority of the losses in the session were in energy and financial stocks.

The deeper issue looming over all markets from the NASDAQ to the ASX is that the stimulus interventions from governments around the world cannot last forever. They have driven the market higher this year, but ultimately, only a revival in company profits can keep it there.