The tech sector is dead but technology lives on.
Although many stocks like Facebook and Alphabet, parent company of Google, are no longer classified as tech but communication stocks and Alibaba and eBay are now considered consumer discretionary companies within the global framework that sorts companies by sector and industry, tech products and services are ubiquitous.
“Tech is pervasive across industries, sectors and regions,” says Christopher Dhanraj, head of iShares Investment Strategy and one of several strategists participating in a recent BlackRock roundtable about investing in technology.
For example, said Dhanraj, tech has been the primary driver of returns in emerging markets since the earnings growth of these stocks are consistently topping growth in the broad emerging markets index. Tech is closely aligned with the performance of Asian emerging markets, including Korea, Taiwan and China, said Dhanraj.
The iShares MSCI South Korea ETF (EWY), iShares MSCI Taiwan ETF (EWT) and iShares MSCI China ETF (MCHI) ETF are all heavily weighted toward tech stocks, though many of their top holdings are no longer classified as such.
The so-called BAT companies – Baidu, Alibaba, and Tencent – which account for almost 30% of the MSCI China ETF, were until recently members of the tech sector in the GICS system; now none of them are. Baidu and Tencent were moved into the new communications sector classification and Alibaba was reclassified as a consumer discretionary stock.
Although the U.S.-China trade war is hurting tech stocks — Chinese tech stocks far more than their U.S. counterparts – its impact will be short-term, said Dhanraj. Supply chains will become more global and China will become more self-sufficient and focused on local consumption, according to Dhanraj.
“Technology is underlying everything,” said Ric Edelman, co-founder of Edelman Financial Services, which recently merged with Financial Engines to become Edelman Financial Engines.