Tech stocks red hot as ASX warms up

With the wider rebound in the market being questioned, the outlook for technology stocks appears stronger.

WiseTech Global founder and CEO Richard White. Picture: Hollie Adams

The ASX is warming up, but technology stocks - now usefully assembled inside the ASX All Tech Index (XTX) - are red hot.

An accelerated move to an online economy mandated by the recent lockdowns has put a rocket under a range of tech-related companies.

Not just the tech titans of the US, but a swag of locally listed stocks that are capturing the confidence suddenly washing through global markets despite a very poor picture in terms of economic fundamentals.

The All Tech Index launched - at 2000 points - on February 24 when the entire global market began to sink.

The index sputtered into life and promptly went into a sharp decline. By March 23 - close to the bottom of the market - it had dropped by a heart stopping 41 per cent.

Today it is back in positive territory. The All Tech is up by more than 3 per cent from its first day and in common with Nasdaq - its Wall Street peer - it is at a record high.

In contrast, despite the ASX 200 managing to scale the 6000 point barrier, it is still about 12 per cent lower than the day the All Tech index was launched.

 

If we look at the picture from a longer term perspective, the ASX 200 performance is less weak - roughly minus 6 per cent on a 12 month basis.

But the message from this crash and the recovery we have witnessed so far has to be the rising ascendancy of the tech sector, which encompasses a broad range of companies from Afterpay (which is really a consumer finance company) to software house WiseTech Global.

Max Cunningham, executive general manager, listings at the ASX says: “We are seeing some very strong performance inside the index. Afterpay is the standout and we have seen a major recovery from WiseTech, which had been dropping well before the wider downturn.”

Afterpay has managed a five-fold increase since March 23 when it was $8.90, and is now above $50.

As an open-ended index which can continually take on board new stocks, there is every chance the current list of 47 stocks will grow in the months ahead.

To qualify for the index, stocks must fit an official criteria which essentially comes down to a handful of capitalisation and liquidity measures such as a market capitalisation minimum of $120m and a daily traded value of at least $120,000.

Indeed, if the wider rebound in the market is questioned due to a weak outlook for both earnings and dividend growth, the outlook for technology stocks is stronger with the emphasis on revenue and profit growth.

Alongside Afterpay and WiseTech, the index offers key stocks such as data warehousing star Next DC gaining traction on the boom in data services and online-only retailer Kogan picking up on the switch to internet shopping.

There is also the loose grouping of WiseTech, Afterpay, Appen, Altium and Xero - a selection sometimes tagged as the “WAAAX” stocks that have little in common except intense share price volatility.

The index also captures what we might call the nearest thing to blue chips in this area - stalwarts of the market such as Technology One, Infomedia and Hansen Technology.

When we combine all of the companies inside the All Tech Index, their combined market capitalisation is considerably smaller than any one of Wall Street’s tech titans, such as Apple, but shareholders seem more than ready to go along for the ride.