Risk appetite may be strong but the ASX index holding our most popular technology shares is at risk of collapsing into a bear market.
What a difference a month makes! The S&P ASX ALL TECHNOLOGY (INDEXASX: XTX) hit a high on 10 February this year and has crashed by around 17%.
The technical definition of a bear market is a peak-to-trough drop of 20% or more. It won't take much for ASX tech shares to reach that dubious milestone.
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ASX tech shares in bear territory
Some of the biggest culprits dragging on the index are among the best loved ASX tech shares. These include the Afterpay Ltd (ASX: APT) share price, Appen Ltd (ASX: APX) share price, ELMO Software Ltd (ASX: ELO) share price and Bigtincan Holdings Ltd (ASX: BTH) share price – just to name a few.
These shares have shed at least a quarter of their value over the past month and some believe there's more pain to come for the sector.
In contrast, the S&P/ASX 200 Index (Index:^AXJO) dipped less than 2% over the same period.
Tech shares crumble on NASDAQ and ASX
The widening gap between ASX tech shares and the broader market isn't unique to Australia. The Nasdaq-100 (INDEXNASDAQ: NDX) crashed nearly 3% last night and is down more than 10% from its high.
This officially puts the US tech index in correction territory, and all this is happening as the Dow Jones Industrial Average (INDEXDJX: .DJI) closed in on a record last night.
This is the first time since 1993 that the Dow Jones rose and closed within 1% of an all-time high while the Nasdaq-100 fell more than 10% from its peak, reported Bloomberg.
Tech tailwinds are waning
Tech shares in Australia and the US have been big winners from the COVID-19 global pandemic as they benefitted from changes in lifestyles.
Companies that helped us work from home or were leveraged to online shopping have soared through 2020.
But it isn't only receding risks of further lockdowns and the expected return to normality that is weighing on tech darlings.
Why tech shares are getting short-circuited
Signs of accelerating global economic growth and inflation are pushing up bond yields – and that's hitting tech shares the hardest.
This is because tech shares are trading on very high valuations. Investors are happy to grit their teeth and buy these expensive names when uber-low rates extend for as far as the eye can see.
But the instance we get a whiff of rising rates, investors are likely to scramble to stocks that offer value or growth at a reasonable price (GARP).
In this environment, it's difficult to see what nearer-term catalysts could turn the tide for our ASX tech sector.
