But despite this, Haefele listed a number of reasons why investors shouldn't be selling tech stocks. Technology companies are trading at 27 times their anticipated future earnings, 22% higher than the start of the year. However, valuations for the Nasdaq are still "well below levels" seen at the height of the dotcom bubble of the late 1990s when the forward price-to-earnings ratio for the index was above 70.
The dotcom bubble of the 1990s saw investors flock to tech stocks and internet related companies, vastly inflating stock prices and pushing the Nasdaq to a then-record high. But the bubble burst in early 2000, and the index lost more than 70% of its value between 2000 and late 2002. Secondly, he said a downward correction does not necessarily imply the start of a more protracted decline, especially given central banks continue to roll out stimulus packages, which are keeping interest rates at rock bottom.
"As a result we are inclined to view the sell-off as a mid-cycle correction rather than the end of the rally. Over the past 5 years, we've witnessed a number of corrections in the global tech sector. Typically these have led to 10–12% peak-to- trough pull-backs, followed by a strong 20%+ rebound in the following six months," Haefele said. Invest excess cash straight away rather than "time the market".
For investors who can implement options strategies, a put-writing strategy may hold value, UBS said. Investors should consider themes like technology disruption, which includes technologies such as 5G. Rebalancing towards themes accelerated by COVID-19 and companies likely to benefit from " a green recovery" are also advisable, UBS said.. Given yields are low, investors will also need to seek other ways of diversifying their portfolios.
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