The enthusiasm for tech stocks is now reaching manic levels with worrying implications for anyone ho...
The enthusiasm for tech stocks is now reaching manic levels with worrying implications for anyone holding an equity unit trust. Not only are the tech stocks creating a narrow leadership in the world's main indices but an extremely high proportion of fund managers have accepted the theory that technology is good and everything else is bad.
They might be right long term but what exactly is the tech exposure that each fund manager has, either in pure plays on the market such as internet companies, or in those that benefit from using technology? And what will happen to both these areas when the crash or correction inevitably comes? Few managers are able to quantify their exact level of exposure to the theme and the phenomenal level these stocks are reaching shows there are enough professional investors prepared to keep backing their new-found beliefs with their clients' money.
The tech phenomenon is not just limited to the US and UK but seems to be an equally potent investment story in markets with different social structures and development paths such as Japan. Perhaps tech really is bringing the radical change to the market that western investors have predicted for so long. But there is also a chance we are yet again projecting our hopes onto an overseas market rather than reflecting any sort of reality. After all, previous certainties provided by the markets have not always come to pass - M&A activity in Europe is nowhere near as radical as has been made out in the past while the pharmaceuticals have gone from being described as a 'growth' to a 'defensive' sector more times than most of us would care to remember.
One problem with the theory that tech will transform life and business relationships is that it has given carte blanche for everyone to come up with a series of increasingly bizarre concepts of how tomorrow's world will function. Anyone producing a ridiculous gadget with no practical use is praised as a soothsayer with a penetrating insight to how the future will pan out.
In the early 1980s everyone wanted a digital watch with a calculator and a space invaders game - there seemed no limit to what could be fitted into a watch. It ended up as a toy. Now we are being told that mobile phone development will lead to greater use in carrying out business transactions through it, such as accessing a bank account, sending e-mail, playing video games or exploring the internet. This might be the case but is it likely anyone really wants to stand on a pavement and browse a website on an inadequately sized screen? How much would you pay for a company that made this sort of assumption?
A final thought - if the internet is such an important theme for the markets, why are so many financial services websites so uninspiring? And why are so many life companies stuck on legacy systems from the 1970s?
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation