ASX 200 tech shares are having a rough day following a 5% plunge on the US Nasdaq Composite (NASDAQ: .IXIC) overnight. The NASDAQ fell by 647 points to 12,317 — its lowest level since November 2020.
US tech giants were sold off, with Amazon.com Inc (NASDAQ: AMZN) losing 7.56%, Zoom Video Communications Inc (NASDAQ: ZM) down 7.47%, Apple Inc (NASDAQ: AAPL) down 5.57%, Alphabet Inc (NASDAQ: GOOGL, GOOG) down 4.7%, and Microsoft Corporation (NASDAQ: MSFT) shedding 4.36%.
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What happens in the US, happens in Oz
As usual, the ASX is following the US lead today. The S&P/ASX 200 Information Technology Index (ASX: XIJ) is down 4.37% at the time of writing. The S&P/ASX 200 Index (ASX: XJO) is also down 2.4%.
So, what's the underlying cause for the fall in both US and ASX tech shares, and the markets in general today? Well, there's a bunch of causes, actually. Investors are worried about rising interest rates, rising inflation, and a slowing US economy as the US Federal Reserve winds back quantitative easing.
Then there's the Russia-Ukraine conflict which is pushing up commodity prices and the cost of energy, as well as the COVID-19 lockdowns in China. Lockdowns are a problem because they put economies on hold, and China remains our biggest two-way trading partner, so there can be an impact on demand for our goods and services.
Why are interest rates rising?
Central banks around the world are having to raise interest rates to deal with rapid inflation. The biggest issue with rising interest rates for share prices is that companies with big debt will end up paying more interest on their debt. That can equate to a big increase in costs, which will have a direct impact on earnings.
As a general rule, when investors get nervous, they sell off riskier assets — usually growth shares and primarily tech shares — before they sell anything else. This is because a lot of ASX tech shares are younger companies in expansion mode. Some are not yet making a profit, and they've taken on loads of cheap debt in recent years to grow their businesses. This strategy makes sense, but now that rates are rising, ASX tech companies need to adapt to increased costs.
It's not like any of this is a surprise — ASX investors have known for some time that interest rate rises were imminent. In Australia, we had our first official cash rate increase this week when the Reserve Bank (RBA) increased the rate by 25 basis points from a historical emergency low of 0.1% to 0.35%. And Governor Lowe has plainly stated that there will be more to come. Over in the US, Fed Chair Jerome Powell has also told the market that it's likely to be 50 basis point rises from here, and there will probably be a few.
What should ASX 200 tech shares investors do?
Even though the prospect of rate rises has been known for some time, the ASX is still reacting negatively. This begs the question, is the current turbulence creating an incredible opportunity to buy high-quality growth and tech shares at very attractive prices? That's the trick with long-term investing – you need to be able to look beyond daily market panic and volatility and think years ahead.
Let's look at some of the large-cap ASX 200 tech businesses whose share prices are being killed today.
- The Xero Limited (ASX: XRO) share price is down 7.69% to $87.88
- The Dicker Data Ltd (ASX: DDR) share price is down 6.31% to $12.33
- The WiseTech Global Limited (ASX: WTC) share price is down 6.08% to $41.61
- The NextDC Ltd (ASX: NXT) share price is down 5.26% to $10.44
- The Altium Limited (ASX: ALU) share price is down 4.36% to $30.73
- The TechnologyOne Ltd (ASX: TNE) share price is down 3.92% to $10.04
- The Computershare Limited (ASX: CPU) share price is down 3.29% to $24.11
Recap on ASX 200 tech shares
The S&P/ASX 200 Information Technology Index rose by 50.17% between the start of 2020 and the end of 2021. In 2022 so far, it has fallen 29.1%. By comparison, the ASX 200 rose by 10.56% between the start of 2020 and the end of 2021. In 2022 so far, it has fallen 5.35%.
