Why February was a shocker for ASX 200 tech shares

February saw ASX 200 tech shares sink lower, with heavyweights such as Afterpay Ltd (ASX: APT) sinking 12% last month

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

February just didn't seem fair for ASX 200 tech share investors. The S&P/ASX 200 Info Tech (ASX: XIJ) index slumped by more than 10% despite the ASX 200 closing 1% higher in February. 

It wasn't just ASX 200 tech shares struggling in February 

It wasn't just ASX 200 tech shares that found February to be a challenging month. A similar narrative played out in the US, where the tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) found itself up more than 8% by mid-February before giving up all its gains to finish the month just 1% higher.  

What's driving the weakness in tech? 

Long-term US interest rates, otherwise known as bond yields, have surged in recent months to briefly touch 1.60%.  

When COVID-19 rattled the markets back in March 2020, bond yields took a plunge to as low as 0.50%. Low yields typically spell good news for equity markets as investors have to consider buying higher-risk investments such as shares to get a better return. 

Yields have since pushed steadily higher since October, to close at 1.46% last Friday.

Higher yields signal higher borrowing costs and inflation, which negatively impact businesses and drag on equity market performance. 

What about other sectors?

Value sectors that typically generate high cash flow with moderate valuations typically do well in higher interest rate environments. This was evidenced by the strong performance from sectors such as the S&P/ASX Energy (ASX: XEJ), S&P/ASX Materials (ASX: XMJ) and S&P/ASX Financials (ASX: XFJ) that finished the month a respective 2%, 7% and 4.5% higher. 

ASX 200 tech shares giving up gains 

The weakness in the tech sector towards the second half of February saw many ASX 200 tech shares giving up gains.

Tech heavyweights such as Afterpay Ltd (ASX: APT) hit a record all-time high of $160.05 mid-February before diving 25% lower to close at $119.50. Xero Ltd (ASX: XRO), on the other hand, spent most of February in the red and down 8% for the month. Its shares are now almost 30% below their record highs set in December. 

March has so far seen ASX 200 tech shares sliding sideways, with the Info Tech index down 0.48% at the time of writing. 

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

3 small-cap ASX healthcare shares 'with strong prospects'

Fund manager IML discusses why these 3 ASX healthcare shares are likely to rise in value.

Read more »

Magnifying glass on a rising interest rate graph.
Share Market News

Will the RBA finally cut interest rates next week?

Let's see what economists are saying about the central bank's meeting.

Read more »

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors endured a rough Friday to close the trading week today.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Broker Notes

7 ASX All Ords shares elevated to 'strong buy' status in October

The brokers turned bullish on these ASX companies last month.

Read more »

A businessman compares the growth trajectory of property versus shares.
Share Market News

How ASX shares vs. property performed in October

The national home value rose for the 21st consecutive month while the ASX 200 dipped.

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

The worst 3 ASX 200 stocks to buy and hold in October unmasked

You would have done well to avoid these three ASX 200 stocks in October.

Read more »

A female Woolworths customer leans on her shopping trolley as she rests her chin in her hand thinking about what to buy for dinner while also wondering why the Woolworths share price isn't doing as well as Coles recently
52-Week Lows

Why is the Woolworths share price at its lowest point since 2020?

We haven't seen Woolies shares this low since COVID.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why AFT, Amcor, Corporate Travel, and Macquarie shares are falling today

These shares are ending the week in the red. But why?

Read more »