U.S. technology isn’t heading into bubble territory but those heavily invested in the sector should rebalance their portfolios into other areas,
strategists said on Monday.
A tech rally led U.S. stocks higher on Friday as some of the sector’s biggest names reported strong earnings.
climbed 8.2% and
rose 3.7% to close the week. The
heavily exposed to tech stocks, climbed 1.5% on Friday—the index is now 25% up year-to-date. Nasdaq futures were 0.9% higher early on Monday, indicating the rally is set to continue.
UBS analysts, led by chief investment officer Mark Haefele, recommended that those heavily invested in tech consider rebalancing into a number of areas, including global stocks, value and cyclical stocks, as well as themes accelerated by Covid-19.
“Concerns remain over the extent of the tech rally, valuations, and most recently an antitrust congressional hearing centered on the big tech companies,” Haefele said.
The global economic recovery should be supported by pent-up demand, particularly in developed markets, while governments around the world are also lining up stimulus packages, the UBS team said, supporting the case for global equities. Global stocks also look attractive relative to government bonds, the strategists added.
A recovery in value versus growth should be supported by quicker-than expected economic growth and the easing of lockdown measures, they said. They liked U.K. stocks, trading at a 20% discount to global stocks, and also saw Singapore as a value play in Asia.
While tech looks more expensive, the sector is exposed to secular growth trends, UBS said, highlighting 5G as a key technology set to “transform the global economy over the next decade.”
“In our view, both enablers and platform beneficiaries are well positioned to deliver double-digit growth,” it added.