The Australian Securities Exchange (ASX) is experiencing a significant downturn in its technology sector, with the S&P/ASX 200 Information Technology Index (ASX: XIJ) falling by 24% since its peak on September 19, 2023. This decline places the index in bear market territory, defined by a drop of 20% or more from its most recent high. The index reached an all-time high of 3,060.7 points before closing at 2,317.6 points on November 21, 2023, a decline of 743 points in just over two months.
In comparison, the broader S&P/ASX 200 Index (ASX: XJO) peaked at 9,115.2 points on October 21, 2023, and has since decreased by 6.3%. Other sectors have also seen declines, although not as steep as the technology sector. The healthcare sector, for instance, is down 23.6% since its peak on January 31, 2023, but this decline has unfolded over a longer timeframe.
Sector Analysis: Technology and Healthcare Struggles
The downturn in both the technology and healthcare sectors is largely attributed to significant declines in the stock prices of their largest companies. For instance, shares of WiseTech Global Ltd (ASX: WTC) have plummeted by 51% from a 52-week high of $134.26 on December 5, 2022. Governance issues and disappointing financial results for the fiscal year 2025 have contributed to investor concerns.
In the healthcare sector, CSL Ltd (ASX: CSL) has seen its shares drop by 37% from a 52-week high of $290.32 on January 8, 2023. The global biotechnology company has faced challenges, including weaker demand for flu vaccines and a major restructuring plan that includes 3,000 job cuts.
The data reveals a stark contrast in the speed of these declines. Healthcare shares have fallen 23.6% over ten months, while technology shares have seen a rapid drop of 24.3% in just two months, indicating that the tech sector may be grappling with more immediate challenges.
Market Volatility and Future Outlook
Concerns regarding potential market bubbles, particularly in artificial intelligence (AI), have intensified the volatility in the tech sector. Recent fluctuations were evident ahead of a quarterly report from AI chip manufacturer Nvidia Corp (NASDAQ: NVDA), which contributed to substantial swings in the ASX 200. During this period, the technology sector was the worst performer, falling 4.07%.
Portfolio managers Joe Koh and Elan Miller from Blackwattle’s Large Cap Quality Fund noted that many clients are inquiring about the possibility of an AI bubble. They pointed to uncertainty over future interest rate cuts as another factor influencing the weakness in ASX 200 tech shares. Koh and Miller remarked, “Some of the weakness was company-specific… but there was also increasing concern around the health of both US and Australian economies.”
Higher expectations for interest rates, following inflation reports in September, have particularly impacted growth stocks in the IT sector. These companies, often reliant on future earnings, are more sensitive to rising discount rates.
Looking beyond the tech sector, Joe Davis, Vanguard’s Global Chief Economist, anticipates a rotation in stock performance as AI technology matures. He suggests that while initial gains may favour tech companies, benefits will increasingly flow to non-tech firms as the technology permeates various industries. “In every technology cycle, the firms producing the new technology do initially outperform… but as the technology spreads, it is non-tech companies that benefit,” Davis explained.
Performance Snapshot of ASX 200 Tech Shares
As of November 2023, here is a snapshot of how some of the largest ASX 200 tech shares by market capitalization are performing:
– WiseTech Global Ltd (ASX: WTC): Down 47% year-to-date
– Xero Ltd (ASX: XRO): Down 28%
– TechnologyOne Ltd (ASX: TNE): Down 0.1%
– Nextdc Ltd (ASX: NXT): Down 9.3%
– Life360 Inc (ASX: 360): Up 84%
– Codan Ltd (ASX: CDA): Up 85%
– Megaport Ltd (ASX: MP1): Up 87%
– Dicker Data Ltd (ASX: DDR): Up 21%
– Iress Ltd (ASX: IRE): Down 2.2%
– SiteMinder Ltd (ASX: SDR): Up 5.9%
The fluctuations in these stocks illustrate the current volatility in the ASX 200 technology sector, as investors grapple with rapid changes and uncertain market conditions. As the situation develops, stakeholders will be keenly monitoring the performance of both tech and healthcare stocks, as well as broader economic indicators that may influence future trends.
