20 September 2020
Source: Bloomberg & Momentum Global Investment Management
What this chart shows The chart shows the relationship between a number of countries’ weightings to technology stocks within their respective equity benchmarks and year-to-date performance of the indices. The trend is clear: the higher the technology weighting, the higher the returns. It is evident that countries with low technology weightings – Brazil, Russia, UK, Italy – have suffered the most this year. Taiwan stands out on this chart. Taiwan Semiconductor Manufacturing Company constitutes 44% of their index and thus distorts the weighting and return somewhat. Why this chart is relevant Technology exposure has certainly been a tailwind for some countries and regions this year, and whilst other industries have stumbled, technology companies have largely benefitted from lockdowns and new working from home routines. However, it isn’t just technology which separates outperformers from underperformers. The UK, for example, is an index with greater allocations to energy and financials, two industries that have been severely impacted this year. Brazil is similar, as is Russia. Global investors with higher allocations to the US have benefitted from the technology tailwind this year, whilst those with higher allocations to the UK, Europe and some emerging markets have found it more challenging. Time will tell if technology continues to act as a tailwind or if the rich valuations of the sector relative to other industries proves too much of a headwind from here.
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