Daily Management Review

A Quiet Tech Revolution In Europe Is Drawing Investors To Bet On It


03/31/2017




A Quiet Tech Revolution In Europe Is Drawing Investors To Bet On It
Poised to end the first quarter as the best-performing sector and having come up trumps in Europe this year is technology stocks and not banking or mining shares.
 
Dwarfed in terms of market value and often pale in comparison to the glamor of peers across the pond such as Facebook, Snap Inc and Amazon ate the European tech companies. worth more than eight times Europe's is the U.S. sector, at $4.3 trillion.
 
However investors see this industry as being at the heart of disruptive digital developments across a slew of sectors and have been quietly buying into this European industry.
 
Outstripping their performance in the first three months of last year when they fell 5.4 percent and the broader market, which is up 4.8 percent, tech stocks in Europe have risen nearly 12 percent in the first quarter.
 
Just a handful of the themes at play globally in which European companies such as STMicroelectronics, Infineon Technologies and SAP are involved include driverless cars, iris-scanning technology and augmented reality.
 
Working on a less headline-grabbing side of the tech sector but one that can be important for companies across all industries looking to cut costs, many European software firms are involved in corporate back-offices, keeping systems efficient and running.
 
"Every consumer is exposed to Google, or Facebook, or Twitter ... something like SAP, which actually is in most corporations, is less visible to the end consumer," said Marcus Morris-Eyton, European equities portfolio manager at Allianz Global Investors. Tech now accounts for nearly a quarter of Morris-Eyton's portfolio, and SAP is his biggest position.
 
In 2016, far ahead of technology firm shares which were up 3.4 percent were oil stocks which rose 22.9 percent while the mining sector was the standout performer in Europe over the course of 2016, gaining 61.9 percent.
 
Dragged down by problems in the Italian sector, banking stocks endured a turbulent first half.
 
Miners are up 6.2 percent, oil stocks are down more than 3 percent and so far banks are only up 4.6 percent in the first quarter, even though those trends were expected to continue into 2017.
 
Concerns that U.S. President Donald Trump may not be able to deliver on all his tax and infrastructure pledges, after his healthcare plans were blocked, the commodities and financial industries have since last week been hit by investor concerns, like many sectors.
 
According to analysts, tech are more governed by long-term global trends in technologies such as automation, driverless cars and augmented reality and is less exposed to immediate political and economic developments.
 
"(In tech) there's always this level of innovation that keeps people engaged and keeps people investing for those opportunities almost irrespective of the economic cycle," said Steve Sherman, senior portfolio manager at BNP Paribas.
 
According to data from Bank of America Merrill Lynch, with tech sector-focused funds seeing the biggest inflows year-to-date since 2009, flows into tech have been strong globally.
 
Likewise Europe-listed robotics and automation exchange-traded fund (ETF) ROBO saw record monthly inflows in February of $80.6 million and hit a new record high last week. Among its top 10 holdings are ABB and Krones.
 
SAP's new product line for the "internet of things" (IOT) - where everyday objects are connected to networks to send and receive data and HANA enterprise cloud software which helps integrate data and applications were highlighted by Morgan Stanley.
 
Portfolio manager Hugh Yarrow holds stocks such as Sage and Relx whose digital analytics are being increasingly used in law, accountancy and finance at Evenlode, one of Britain's best-performing investment funds last year.
 
Closely linked to Apple and the iPhone cycle are chip makers such as Infineon, STMicroelectronics and ASML in more traditional sectors of tech.
 
Betting big on STMicro is Stuart Mitchell, manager of the SWMC European Fund at S.W. Mitchell.
 
(Source:www.reuters.com)






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