The Australian Securities Exchange (ASX) has seen a significant downturn in technology shares, driven by a global risk-off sentiment and a reassessment of the tech sector. The S&P/ASX 200 Information Technology Index (ASX: XIJ) has plummeted by 43% over the past six months, prompting investors to question the future of growth-oriented technology stocks. Concerns surrounding the impact of artificial intelligence (AI) on traditional software business models have intensified, leading to a wave of selling in software and Software-as-a-Service (SaaS) companies.
Several major companies have experienced notable declines in their stock prices this year. For instance, TechnologyOne Ltd (ASX: TNE) has dropped 22% year-to-date, while Xero Ltd (ASX: XRO) has fallen 30%. Other notable declines include Life360 Inc (ASX: 360), down 28%, and SiteMinder Ltd (ASX: SDR), which has decreased by 38.5%. WiseTech Global Ltd (ASX: WTC) is also facing challenges, with a 31% drop so far this year.
Market Sentiment and Expert Opinions
Despite the current climate, some experts argue that the panic surrounding the technology sector may be overblown. Research from J.P. Morgan Private Bank critiques the market’s reaction, describing it as “broken logic” and claiming that the market is selling off indiscriminately. Similarly, analysis from Wilsons Advisory suggests that the negativity surrounding these stocks does not reflect their fundamental value.
Investors are grappling with whether to stay the course or look for opportunities in the technology space. Experts indicate that while current holders may need to exercise patience, potential buyers could find attractive entry points during this downturn. For those considering investing in technology, technology-focused ASX exchange-traded funds (ETFs) could be a viable strategy.
Three ASX ETFs to Consider
Investors looking to capitalize on the anticipated recovery of the technology sector may find the following ASX ETFs appealing, despite the risk of further declines in the short term.
The BetaShares S&P ASX Australian Technology ETF (ASX: ATEC) is one option, currently down approximately 20% year-to-date. This fund provides exposure to leading ASX-listed companies across various tech sectors, including information technology, consumer electronics, and medical technology.
Another option is the Global X Morningstar Global Technology ETF (ASX: TECH), which takes a broader approach by focusing on global technology companies. This fund targets firms that are set to benefit from the increasing adoption of technology, particularly those involved in SaaS, Platform-as-a-Service (PaaS), and cloud computing. However, investors should be cautious if they hold bearish sentiments regarding the future of SaaS companies due to the influence of AI.
Lastly, the Global X FANG+ ETF (ASX: FANG) focuses on high-growth technology companies, including both established giants and emerging players. This ETF is down 16.5% year-to-date and encompasses just ten underlying holdings, all selected for their global tech and growth potential.
As the technology sector navigates this challenging period, investors must carefully assess their positions. While some may view these ETFs as opportunities, they should remain aware of the potential for continued volatility.
In conclusion, the current downturn in the ASX technology sector raises critical questions about the future of growth stocks. By considering these ETFs, investors may find pathways to benefit from an eventual recovery, but they must weigh the associated risks diligently.
