How did the S&P/ASX All Technologies Index (XTX) perform in 2021?

You needed your vomit bags if you were flying with ASX tech shares last year.

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If the S&P/ASX All Technology Index (ASX: XTX) was a rollercoaster, every passenger would have vomited sometime in 2021.

Yes, the index representing the Australian technology sector did end the year 3.72% above where it started.

But during the journey, the index sank 20% from peak to trough and then soared 30% the other way in a matter of weeks.

That’s stomach-churning volatility.

Why were ASX tech shares so volatile in 2021?

There were many factors pulling and pushing technology shares last year.

First is the fear of persistent inflation and rising interest rates that dominated markets the past 12 months.

Tech shares, the theory goes, are more dependent on future earnings because they are in growth stages more than the “traditional” sectors.

And future earnings rise or fall according to interest rates, which have been at historic lows in recent times.

When interest rates head up, the valuation case for a growth stock deteriorates.

Perhaps a case in point is Afterpay Ltd (ASX: APT), which has been an ASX darling despite never posting a profit.

After making plenty of investors wealthy the past few years, 2021 was a real struggle. The stock lost almost 30% in value, and just in the new year it hit 52-week lows.

Remember when we were all excited about vaccines and Joe Biden?

The second big factor was the unstoppable force that’s oppressed the planet the past couple of years — COVID-19.

Remember a year ago? Spirits were high as vaccines were discovered to quell the pandemic. A new US president was inaugurated to provide stability that his predecessor could not manage.

We were all making plans for what we would do in our post-COVID lives.

Then a few months later the Delta variant of the coronavirus struck, devastating places like India and plunging Australia’s biggest cities into lockdown.

They were dark times as we spent the winter stuck at home, and Melbourne was crowned the most locked down city of the pandemic.

Fortunes then swung again as Australians rallied in their millions to receive vaccines.

In October, NSW and Victoria felt confident enough to liberate their citizens and even declare “no more lockdowns”.

Returning to something like a normal life while living with COVID seemed like a realistic goal. Businesses could see a light at the end of the tunnel.

Then we woke up at the end of November with the news that yet another variant, Omicron, had seeped out of South Africa.

The last 5 weeks of the year saw it spread around the world and Australia is now battling close to 50,000 new cases each day.

Is it any wonder the ASX All-Tech index was so volatile over 2021?

Not sure 2022 will be any less volatile

With COVID-19 and persistent inflation still as applicable as ever, there is absolutely no guarantee that this year will bring stability for tech stocks.

But volatility means there could be some juicy buying opportunities.

For example, Medallion Financial managing director Michael Wayne told The Motley Fool that he would now only buy Xero Limited (ASX: XRO) if a dip presented itself.

That’s despite his assessment that it is still a quality company.

“We feel it best to be patient as the share price is prone to volatility,” he said. 

“All else remaining equal, we would look at buying around the $110 to $115 level.”

Xero shares closed Wednesday at $140.67.

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Motley Fool contributor Tony Yoo owns Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Afterpay Limited and Xero. The Motley Fool Australia owns and has recommended Afterpay Limited and Xero. 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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