GLOBAL EQUITY OUTLOOK - FOR QUALIFIED INVESTORS

Tech for the long run

19-Sep-2017
By Kate Moore

Sentiment on tech stocks is oscillating between greed and fear once again. Investors are torn between optimism on this fast-growing, high-earning sector and skepticism given its meteoric rise and memories of the dot-com bust. We dig into the opportunities – and the obstacles.

Equity highlights

  • Investors have tended to overestimate the near-term effects of technology and underestimate the long-term potential. But we see disruption and transformation across the technology universe creating attractive long-term investment opportunities for both growth and income seekers.
  • Semiconductors are a story worth a read, we believe. The once highly cyclical group is benefiting from a more diverse demand base, reduced supply after years of consolidation, and new applications in a data-driven world. But the industry may face real competition from China, which has named semis as a strategic priority.
  • The key concerns? In the short term: profit-taking as nervous investors look to lock in gains and redeploy their capital in other opportunities. In the longer run: potential regulation as the sector’s size and influence draw the attention of policymakers.

Snapshot

The many intricacies of tech may be outshone by high-flying headline makers: the U.S. FAANG stocks (Facebook, Apple, Amazon, Netflix and Google’s parent Alphabet) and their powerhouse equivalents in China — BAT (Baidu, Alibaba and Tencent). Both groups have propelled their regional stock markets higher year-to-date. FAANG returned 35% compared to 10% for the remainder of the S&P 500, while BAT returned 81% versus 26% for the remainder of the MSCI China Index. Yet many companies that don’t make it into the popular acronyms hold appeal for diversified portfolios.

Running ahead
FAANG and BAT performance vs. all others, 2017

faang-and-bat-performance-vs-all-others

Sources: BlackRock Investment Institute, with data from Bloomberg, September 2017. 
Notes: S&P 500 ex-FAANG and MSCI China ex-BAT are based on the market-capitalization-weighted price performance of the indexes excluding FAANG and BAT stocks. Series are rebased to 100 on Dec. 30, 2016. References to the securities above are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

Chief Equity Strategist
Kate Moore, Managing Director, is Chief Equity Strategist for BlackRock and is a member of the BlackRock Investment Institute (BII).

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