Global tech funds are back in demand and investment inflows are surging as rising inflationary pressures and a selloff in bonds drive investors into a sector perceived as both cheap and resilient.
According to Refinitiv data, tech funds have received inflows worth US$2.55 billion since March 16, after outflows worth US$6.86 billion in the first two months of this year.
"Tech stocks have not seen a decline in fundamentals, so we see this rally as a rebound from over-cautious investors expecting the Fed would tighten policy too fast," said Amanda Agati, chief investment officer at PNC Asset Management Group.
"Going forward, we have first-quarter earnings season just weeks away ... One of the standouts is expected to be tech, which has been the earnings workhorse during the pandemic," she said.
The KraneShares CSI China Internet ETF received US$640.6 million in net buying in the week ended Mar 23, while iShares’ Expanded Tech-Software Sector ETF and Semiconductor ETF obtained US$372.3 million and US$260.5 million, respectively, in inflows.
Chinese tech shares, which had lagged their global peers over the past year, also participated in this week's rally, on reports that Chinese regulators have asked some of the country's US-listed firms to prepare for more audit disclosures.
The move was perceived as demonstrating Beijing's willingness to make some concessions to resolve a long-running Sino-US audit standoff in which hundreds of billions of US investment dollars in Chinese companies are at stake.
The Hang Seng SCHK China technology index has risen 23 per cent since Mar 15, compared with the MSCI World technology index's gain of 7.1 per cent.
Joseph Seeger, senior technology analyst at Nasdaq IR Intelligence, said the higher inflows into the tech funds came as investors divert their money from bond funds into equity funds.
"Investors are broadly rotating into equities from bonds as the US 10-year Treasury yield climbed higher in 10 of the past 13 trading sessions to 2.38 per cent," he said.
"Another catalyst includes generally oversold market conditions in technology, with multiples compressing on average of 40 per cent from the peak."
Analysts said the tech sector still has strong fundamentals and high cash levels, which would help to reward shareholders with dividends and share buybacks this year.
According to Refinitiv data, the global tech sectors' cash flow per share stood at US$1.26 in 2021, the highest among main sectors.
Chinese e-commerce giant Alibaba Group Holding Ltd said this week it has upsized its share buyback programme to US$25 billion from US$15 billion.
PNC Asset Management's Agati said the small-cap tech stocks have been performing well because much of the sector is in the alternative/clean energy ecosystem.
Their importance to the energy outlook becomes a significant tailwind, she said, with oil prices above US$100 a barrel.
"The global tech rally is well overdue, as the leaders in China tech have been under pressure for over a year at this point. A lot of that hinges on China policymakers following through."