US Cap Tech Corrections Expected, Innovation Drives Australian Tech

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US Cap Tech Corrections Expected, Innovation Drives Australian Tech

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  • Economists anticipate more realistic economic assessments to occur during 2Q22 due to current Omicron viral wave
  • US large-cap tech companies expected to see corrections after highs in 2021
  • Business innovation to present growth opportunities for Australian tech sector

In a global pandemic that sees increased need for innovation in business, technology stocks have certainly seen buoyant market conditions throughout the past two years. Compared to strong equity performance in 2021 that was based on continuing stimulus support, 2022 however presents mixed considerations among analysts. With most speculating less dynamic growth for the year, especially as interest rate hikes gradually kick into gear, large-cap tech companies are among those expected to present with more muted performance in 2022.

As with most other sectors, investor appetite for technology companies is likewise tied to public health expectations of the present spread of the Omicron viral variant. Based on established knowledge from South Africa’s response to its own outbreak early in December, public health officials in the US and Australia keep expectations of transmissions peaking by the end of January. These expectations, however, do not take into consideration any future potential developments such as outbreaks of new viral strains.

This being a primary consideration among economists, most anticipate a more realistic economic assessment of the year to materialise during the second quarter of 2022. Despite the stimulus-backed optimism of 2021, conservative estimates maintain a focus on when central banks in Australia and the US will implement their planned interest rate hikes.

These decisions will likely influence a general preference for a lower risk appetite for the year ahead. With this caution exercised due to looming rate hikes and continuing pandemic uncertainty, analysts expect market corrections to take place this year, especially with large-cap tech companies like Amazon, Apple and Tesla already presenting lower prices since November highs.

Continuing Innovation to Drive the Australian Tech Sector Forward in 2022

Despite large-cap tech stocks in the US presenting as an overcrowded market, more discerning choices could materialise in Australia, in the form of innovation-focused tech designed specifically to augment pandemic-hit industries such as trades and professional services. 

Australian tech stocks could be driven up by unique innovation opportunities, especially as the nation moves into 2022 with public health and labour shortage concerns fresh among pressing agendas. These prevalent labour conditions place Australian platform Hipages Group Holdings Limited (ASX:HPG) in a favourable position to benefit from increased demand for its software as a service that connects customers with a network of tradies. More recently, Hipages also announced its acquisition of New Zealand business Builderscrack for A $11.8 million, presenting a considerable growth opportunity for investors to enter earlier on during the start of this year.

Small and medium enterprises in Australia have similarly borne the brunt of pandemic effects that present mounting concerns to improve cost-efficient operations. Among such concerns include automating business processes to increase efficiency while lowering overheads. Resolving these concerns through innovative business technology is what companies like Xero Limited (ASX:XRO) are best positioned to do. The company provides client businesses with reliable cloud accounting services that keep their operations lean and efficient. 

For FY2022, Xero has already grown its subscriber base 23 per cent to 3.01 million users. Additionally, the company’s long-term growth strategy sees a focus on reinvesting for growth. To date, the company has built a considerable presence beyond Australia and New Zealand, to include market share in the US, UK, Singapore, South Africa, and Canada.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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