Air hisses out of the tech-stock bubble

Are we seeing an “overdue resumption of sanity” in the technology sector? asks Richard Holway of Techmarket View.

Last week the New York initial public offering of King, the producer of addictive game Candy Crush Saga, fell by almost a fifth in three days. It had been valued at $7bn, which seems a bit much for a game that merely consists of “matching little coloured thingies” on your smartphone or tablet, says Jeff Sommer on Nytimes.com.

The King flop merely highlighted the broader retreat in technology stocks over the past month. The Nasdaq Internet index has slid by 10% from its early-March peak, while the Nasdaq Biotech has slid even further.

In 2000, the wider market was badly dented when air began to hiss out of the tech bubble. But this time it has “barely blinked”, notes James Mackintosh in the FT.

That’s because investors have rotated out of ‘growth stocks’, those that had attracted a premium valuation based on hopes of rapid profit growth in the future, to ‘value’ shares, companies on relatively low price-to-earnings or price-to-book levels.

This trend has been evident on a global scale, says Mackintosh; witness the uptick in Chinese bank stocks in recent days. If it holds, it suggests that the rally’s foundations are becoming more solid.

Growth stocks have outperformed the value plays since 2007 in the American market. It was high time investors concentrated on more reasonably priced shares and gave the overheated technology sector a long, overdue rest.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.