There just might be a bear in there under the larger canopy of the ASX/S&P 200: the newly minted All Tech Index is suddenly floundering — down more than 17 per cent from its peak on February 10.
Launched with some fanfare a little over a year ago, in February 2020, the index has had a dream run until very recently: the COVID crisis with its burst of online activity underpinned a major lift in the index last year. It remains up about 60 per cent over a 12-month period.
But the mood across the market is changing as “growth” stock momentum fades and the spectre of higher interest rates looms, favouring value stocks and dividend payers.
Crucially, the sell-off to date is occurring in isolation: the S&P/ASX 200 is little changed — falling about 2 per cent — since the tech sell-off took hold.
As the All Tech faces its first bear market (defined by an index dropping 20 per cent from a peak), it has been “buy now, pay later” sensation Afterpay, with its key position as the biggest stock in the index, that has led the fall.
With Afterpay’s monster market capitalisation of $32bn, many of the 69 stocks that make up the index look like minnows. Flanking Afterpay on the index are tech leaders such as Xero, Appen, Altium and WiseTech.
Something similar is happening on Wall Street, where the Nasdaq is now off about 10 per cent from its recent peak, while the Dow Jones index keeps pushing up against an all-time record — a mixture of circumstances not seen on global markets for almost three decades.
For market investors, the plunge in tech stocks is the manifestation of this year’s “switch” where money is flowing towards old-fashioned comforts such as dividends and away from “growth” stocks typified by Afterpay, which does not pay dividends.
The loss-making BNPL giant trading near $107 is now down by a third over the past month, with a chunk of that shrinkage occurring in recent days. (Meanwhile the company had little trouble selling a $1.5bn “zero coupon” convertible note that is not due until 2026 at $181.
Afterpay as the king of the local tech sector is a microcosm of the issues facing a string of stocks — the company is showing a consensus analysts valuation of $125.
Among the highest valuations is broker Ord Minnett with $150. At the other end of the spectrum is stockbroker UBS, which has a sell call on the stock and suggesting it is worth no more than $60.
Across the board, the BNPL sector is down comprehensively with precious few stocks escaping the sell-off — as well as Afterpay’s fall, Humm is down about 25 per cent, Zip by 14 per cent and Splitit by 34 per cent.
Behind the sell-off is the fear over rising bond yields, which could signal higher interest rates — if they do move upwards, then the present value of future cashflows at BNPL stocks have been set too high and will need to be marked down.
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