“While global equities have experienced trouble this year, the technology sector continues to print solid returns for investors, thereby enhancing its attractiveness even more”, according to SaxoBank Q3 Quarterly Outlook.
It said an interesting feature of technology companies is their low debt leverage which makes the sector the least sensitive to changes in monetary policy, a benefit for global equities.
Peter Garnry, head of equity strategy, said: “The technology sector has the highest return on invested capital and uses less capital expenditure compared to others. The combination of these factors has pushed the valuation premium over global equities to 27 percent, which is a fair aggregate premium to pay for the only sector that delivers on growth every earnings season.”
He added: “The technology sector has changed from being dominated by hardware to being dominated by software which has much more attractive features for shareholders. We recommend investors stay overweight software.”
Though the Outlook found that the biggest risks to the technology sector are regulation and global semiconductor disruption from an escalating trade war between the US and China.
But it said “the probabilities for both scenarios having major impacts on the technology sector in the short term are low”.
Saxo stated that commodities will be challenged while awaiting the outcome from a developing trade war.
It said: “Following a strong start to the year, the outlook for commodities has become increasingly challenged as multiple headwinds have started to emerge.”
