High-flying ASX tech shares could fall another 90%: fundie

Here's a dire warning from a veteran investor for all those who bought shares last year like Afterpay, Tesla and Zoom.

| More on:
rise in asx tech share price represented by digitised rocket shooting out of person's hand

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After a huge 2020, growth shares have had a bit of a rest this year.

Technology, specifically, led the way in massive market gains in 2020 after the March COVID-19 trough. The S&P ASX All Technology Index (ASX: XTX) gained a whopping 125% from 20 March to the end of the year.

But this year has been a different story, with growth and tech shares falling out of favour.

The ASX All Tech index remains flat, increasing just 0.9% since New Year's Day.

The rotation to value stocks has been triggered by a fear that inflation would rise as the world recovers from the pandemic. When inflation rises, interest rates could rise. 

And that's bad news for high-growth stocks, according to Platinum Asset Management chief executive Andrew Clifford.

"Many high-growth stocks have seen their share prices fall considerably from their recent highs, with bellwether growth stocks such as Tesla Inc (NASDAQ: TSLA) down 27% from its highs, Zoom Video Communications Inc (NASDAQ: ZM) down 45%, and Afterpay Ltd (ASX: APT) down 35%," he said in an update to investors.

"Theoretically, rising interest rates have a much greater impact on the valuation of high-growth companies than their more pedestrian counterparts. As such, it is not surprising to see these stocks most impacted by recent moves in bond yields and concerns about inflation."

Is the slowdown in growth shares temporary or chronic?

Multiple experts have predicted that the aversion to growth stocks is temporary, and the market would soon return to the 2020 darlings.

T Rowe Price Group Inc (NASDAQ: TROW)'s investment committee for its Australian arm last month already started shifting its allocation from value to growth.

Nucleus Wealth head of investments Damien Klassen also stated last month that pre-COVID deflationary forces would reassert themselves soon.

Clifford disagrees. He has grave fears for growth stocks that so many people ploughed their money into last year.

"For many (but not all) of the favourites of 2020, we would not be surprised to see them fall another 50% to 90% before the bear market in these stocks is over," he said.

"If our concerns regarding long-term interest rates come to fruition, this will be a dangerous place to be invested."

His bearish view was based on his forecast that interest rate rises would be irresistible.

"It is hard to see how we can avoid a strong cyclical rise in inflation," he told investors.

"It is an environment where there is likely to be ongoing upward pressure on long-term interest rates."

And history could serve as an example.

"We only need to look to the end of the tech bubble in 2000 to 2001 for an indication of how this may play out," Clifford said.

"The much-loved 'new world' tech stocks collapsed in a savage bear market, while the out-of-favour 'old world' stocks rallied strongly."

Tony Yoo owns shares of AFTERPAY T FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla and Zoom Video Communications. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Zoom Video Communications. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Growth Shares

rising leisure asx share price represented by three happy faces on slot machine
Growth Shares

Buy 'one of the highest quality' growth shares on the ASX 200

An expert has just revealed why you should bet on this ASX growth stock.

Read more »

A woman holds her hand out under a graphic hologram image of a human brain with brightly lit segments and section points.
Growth Shares

1 ASX growth stock that turned $10,000 into $21,000 in less than 2 years

The AI boom continues its ripple effects on the ASX.

Read more »

A fit man flexes his muscles, indicating a positive share price movement on the ASX market
Growth Shares

4 ASX growth shares to buy to supercharge your portfolio in June

Analysts think these exciting growth stocks are in the buy zone.

Read more »

Kid on a skateboard with cardboard wings soars along the road.

ASX growth stock on the cusp of profitability: My multibagger pick

I'm hoping to buy this small-cap stock and turn $5,000 into $20,000.

Read more »

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

a man in a business suite throws his arms open wide above his head and raises his face with his mouth open in celebration in front of a background of an illuminated board tracking stock market movements.
Growth Shares

2 ASX growth shares with legit potential to outperform the market

Analysts are tipping these shares to deliver returns far greater than historical averages.

Read more »

A man is shocked about the explosion happening out of his brain.
Growth Shares

2 no-brainer ASX 200 shares to buy next week

It's not hard to see why these quality companies could be great long term investment options.

Read more »

a happy investor with a wide smile points to a graph that shows an upward trending share price
Growth Shares

2 of the best ASX growth shares to buy right now

Analysts believe these shares are well-positioned for growth in the coming years.

Read more »