Investors shouldn’t rush to big tech stocks, as reflation and reopening of trades are better bets in the short term, according to UBS
- Investors shouldn’t be rushing to buy stocks in big tech companies, UBS’s wealth management team said on Monday.
- Tech stocks will face a further rise in bond yields and the sector will face regulatory hurdles in the near term.
- House lawmakers last week introduced five bills to address antitrust concerns.
- See more stories on the Insider business page.
Investors should refrain from plunging back into stocks of large tech companies, according to UBS’s wealth management team, as the industry faces regulatory challenges and will be hit again by rising borrowing costs .
Overall, major tech stocks have recovered from their year lows. High-tech stocks were scrapped by investors earlier in the year as buyers sought companies they felt are more directly exposed to the economy reopening. The Nasdaq Composite has risen about 10% so far this year and the NYSE FAANG + index which tracks mega-cap tech stocks is up about 9%.
But a comeback in tech stocks may be a misstep for short-term investors, UBS said.
âWe don’t think investors should be rushing into big tech, with tactical perspectives favoring reflation and reopening of beneficiaries like finance and energy,â said Mark Haefele, investment director of wealth management global at UBS, in a note released Monday.
One reason for this view is that UBS expects government bond yields to start rising again. This could lead to a new set of problems for tech stocks after the closely watched 10-year yield earlier this year quickly hit a 14-month high of 1.76%. The jump to the top in March is due to investors selling bonds and seeking riskier assets, as coronavirus vaccinations and government spending plans have fostered strong growth prospects for the world’s largest economy. But the higher yields have fueled fears that higher borrowing costs will hurt tech companies.
Yields have retreated from their highs as investors appear to have adopted the Federal Reserve’s view that high levels of inflation will be temporary and that it will stick to measures to support economic growth. UBS said, however, that it believed yields would gradually start to rise again at the expense of tech stocks.
Additionally, “we believe US antitrust developments could pose an overall short-term risk to tech stocks,” Haefele said.
Last week, House lawmakers introduced five bills aimed at giving regulators more power to prevent tech companies from dominating the market too much and the bills enjoy bipartisan support. The legislation targets Amazon, Apple, Facebook and Alphabet, the parent company of Google, which in recent years have come under intense scrutiny over competition concerns.
âSo in a portfolio context, we think investors should consider allocating to growth and technology through private equity stakes,â as the investment case for the tech industry is still strong at longer term, UBS said.
He said global technology acquisitions in private equity reached $ 82 billion in the first quarter, marking an all-time high for a quarter, and were up 144% from the first quarter of 2020.
“With approximately 497,000 private technology companies worldwide, the range of investable companies is vast compared to the approximately 8,100 public technology companies,” UBS said.