ASX tech shares, as whole, haven't exactly shot the lights out in 2022.
To say the least.
Here's what we mean.
Since the opening bell on 4 January, the S&P/ASX 200 Index (ASX: XJO) has lost 5.4%.
That's not great.
But it sure beats the 22.1% year-to-date loss posted by the S&P/ASX All Technology Index (ASX: XTX).
Which sectors haven gained while ASX tech shares have tumbled?
So, which sectors have been making hay even as ASX tech shares have come under selling pressure?
With skyrocketing energy and commodities prices, you likely won't be surprised by the answer.
Year-to-date the S&P/ASX 200 Resource Index (ASX: XJR) has gained 2.2%. Not at all bad in less than 3 months' time.
Yet the S&P/ASX 200 Energy Index (ASX: XEJ) has raced far higher, gaining 15.3% so far in 2022.
Does that mean the boat has sailed on energy and resource shares and investors should increase their exposure to ASX tech shares?
Not according Jessica Amir, Saxo Markets Australian market strategist.
Time to run the slide rule over your portfolio?
According to Amir, "The Aussie market is searching for direction, and has tracked sideways for 3-months now, awaiting the next big catalyst."
"When it comes to the central banks, markets are still in the dark and want to price in how many rate rises will be made in the US, and in Australia," she said.
Which brings us back to ASX tech shares.
According to Amir, "Given profits will be squeezed when rates rise, money has continued to come out of tech … this year and instead go into energy – oil, gas and coal – stocks."
Amir continued:
The Australian Bureau of Statistics alluded to companies' profit growth being squeezed, from Omicron, higher wages and oil prices. Just imagine what will happen if rates rise 4 times to companies that were born from zero interest rates?
This is why we advocate for investors to reduce their exposure to tech, and continue to favour commodities, given lack of supply and rising demand overtime.
ASX tech shares broadly led yesterday's rally. However, many of them are valued with far future earnings growth in mind, which could place them under renewed pressure as investors eye rate increases.
As the cost of money rises, some of those values may look increasingly stretched.
