Chris Iggo

Macroscope | Why tech stocks are thriving on the global stage despite headwinds

In spite of enduring a period of falling earnings, forecasts of recession and rising geopolitical tensions, the technology sector is leading global returns

Drivers of performance include the US pursuing more tech investment, increased focus on supply chains and the explosion of interest in artificial intelligence

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Nvidia chips on display during the Taipei Computex expo in Taipei, Taiwan, on May 29. Tech stocks are responding to the opportunities provided by the AI explosion. Photo: Bloomberg

Chris Iggo

Published: 3:00am, 1 Jun 2023Updated: 3:06am, 1 Jun 2023

Technology stocks have led returns in global equity markets so far this year. At the MSCI World level, the information technology sector has delivered total returns of more than 25 per cent compared to about 10 per cent for the total index.

Global energy stocks – last year’s winners – have delivered a negative return this year. The world, it seems, has gone from dealing with a real income-destroying energy price shock to embracing growth enhancing technology again. This is good for Asia and good for medium-term economic growth.

The United States is leading the way, as is normal. In fact, most of the total return from the S&P 500 has come from just a handful of mega-cap technology stocks in 2023. There are concerns that this concentration of leadership means that investors who do not want increased exposure to technology stocks in their portfolios will underperform the market benchmark indices.

However, it is important to understand the drivers of this performance. While there is not the same level of concentration in other markets, technology is one of the best-performing sectors in the European equity market. South Korea and Taiwan – both technology-heavy markets in Asia – are two of the world’s best-performing markets.

Something is driving technology even when the sector has gone through a period with falling per-share earnings, forecasts of recession, and geopolitical tensions and regulatory threats that remain a constant source of risk to the sector.

US President Joe Biden delivers his remarks during a visit to Taiwan Semiconductor Manufacturing Company’s first fabrication plant in Phoenix, Arizona, on December 6, 2022. Photo: Reuters

Drivers of performance include the fiscal incentives associated with the US administration’s pursuit of higher investment in digitalisation and the energy transition, increased focus on the security of supply chains in response to Covid-19 and recent geopolitical developments, as well as the explosion of interest in and application of artificial intelligence.