Well, one of the biggest pieces of news on the ASX share market today is the performance of ASX tech shares. Long story short, it’s not shaping up to be a good day. The entire tech sector is currently being smashed. The S&P/ASX All Technology Index (ASX: XTX) is currently down 2.2% to 2,534 points at the time of writing. That’s its lowest level since November last year.
But some of the ASX’s more prominent tech shares are faring far worse. Afterpay Ltd (ASX: APT) is down a nasty 5% to $8.68 a share, a level not seen since October last year. The buy now, pay later (BNPL) giant has now lost roughly half of its market capitalisation since peaking at $160 back in early February. Xero Limited (ASX: XRO) has also shed around 7.4% and is going for $124.96 right now. And Nuix Ltd (ASX: NXL) continues to explore new lows today. Now Xero’s move isn’t being helped by the company’s full-year results which were released to investors before market open this morning. Despite an 18% increase in revenue and a 20% increase in subscribers, it seems investors weren’t too impressed that these numbers weren’t as high as some analysts were expecting.
But that can’t explain the malaise across the entire tech space today. So what gives?
Well, the market’s formerly dormant fears over inflation and interest rate hikes appear to be reawakening with a passion. Until the start of 2021, investors had shown a penchant for high-growth, midcap shares in the tech space. Some of these shares, like Afterpay and Xero, were some of the best ASX performers last year. Aside from the initial onset of the pandemic of course. But these companies which led the ASX share market recovery last year appear to be the first shares that investors are looking to jettison. Why? Well, it might all come back to the ‘inflation’ thing.
America first: US leads tech share sell-off
This is more of a concern over in the United States right now than here. The US markets are coming down from a government spending high. After the passage of the mammoth US$1.9 trillion COVID stimulus bill a couple of months ago, the new Biden administration has now proposed a number of additional spending plans. These involve infrastructure spending, climate change action, and increasing assistance to state and local governments.
All of these plans have sparked concerns over inflation. And these fears are ramping up. According to a report in the Australian Financial Review (AFR) today, consumer prices in the US increased in April at the highest pace since 2009 at 0.9% for the month. This reportedly exceeded the highest estimations that economists had been predicting. Annualised, it points to a 4.2% increase in prices, the highest since 2008.
These exexpectedly strong figures have pushed up government bond yields. According to CNBC, the 10-year US treasury bill was yielding around 1.56% a week ago. It’s at 1.68% today. This indicated the market is pricing in future inflation – and interest rate hikes.
And that’s bad news for tech companies. The US has seen mid-cap tech shares smashed over the past week or so. Stocks like Zoom Video Communications Inc (NASDAQ: ZM), Tesla Inc (NASDAQ: TSLA) and Coinbase Global Inc (NASDAQ: COIN) have all sold off heavily. The shenanigans going on with Elon Musk and Bitcoin (CRYPTO: BTC) that my Fool colleague Brooke Cooper covered earlier today probably isn’t helping either. And this sentiment appears to be spilling over into the ASX tech space. That’s despite the Australian economy not facing the same kinds of inflationary concerns right now. But such is the way of these things.