Why are ASX 200 tech shares getting hammered today?

Concerns over rising interest rates are hitting growth stocks.

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The S&P/ASX 200 Index (ASX: XJO) is in the red at time of writing. After opening higher in early morning trade, the index is currently down 0.1%.

But ASX 200 tech shares are, widely, doing it much harder today, which has sent the S&P/ASX All Technology Index (ASX: XTX) down 1.7%.

Among the worst ASX 200 performers today are Nearmap Ltd (ASX: NEA), down 3.8%; TechnologyOne Ltd (ASX: TNE), also down 3.8%; and buy now, pay later heavyweight Afterpay Ltd (ASX: APT), down 3.7%.

So, what’s going on?

Why are ASX 200 tech shares getting hammered today?

Australia’s ASX 200 technology companies are largely following their United States’ counterparts lower.

Yesterday (overnight Aussie time), the tech heavy Nasdaq closed down 1.3%. Electric vehicle giant Tesla Inc (NASDAQ: TSLA) lost 4.2%.

And most analysts are pointing to inflation fears as the culprit.

With inflation running hotter and likely remaining longer than central bankers had forecast last year, the US Federal Reserve could be looking at 3 interest rate rises this year. Moves that could well be followed by other inflation wary central banks across the world, including the Reserve Bank of Australia (RBA).

Higher interest rates tend to be bad news for growth stocks like many ASX 200 tech shares, whose share prices are often reliant on future earnings. Expectations of higher rates are already seeing US government bond yields surge.

Mike Bailey, director of research at FBB Capital Partners, said (quoted by Bloomberg), “The 10-year Treasury yield [now at 1.65%] is on fire and that could be weighing on sentiment for growth stocks, especially expensive ones, such as tech and semis,”

Singling out tech shares, Luke Hickmore, investment director at Standard Life Investments added, “With bond yields moving higher the market is adjusting tech lower. Tech is suffering from the long duration nature of these assets – i.e. it is generally a long time until the current valuation is supported by earnings in a normal multiple.”

How have tech shares stacked up over the past year?

ASX 200 tech shares had a great run coming out of the pandemic sell-off in March 2020.

But over the past 12 months, that great run has slowed to a crawl for many of the bigger and smaller listed tech shares.

Since this time last year, the ASX All Tech Index is up 2.7% compared to a gain of 13.3% for the ASX 200.

In US markets the variance is less stark, but still there. Over 12 months, the Nasdaq is up 21.9% compared to a gain of 28.6% posted by the S&P 500.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Afterpay Limited and Nearmap Ltd. The Motley Fool Australia owns and has recommended Afterpay Limited and Nearmap Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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