With the US Federal Reserve cutting its policy interest rate last week, many are eyeing the effects on ASX tech shares.
Meanwhile, recent market activity in the US shows investment funds snapping up tech stocks. Whilst this may suggest US investors are bullish, the question is whether this will translate over to the ASX.
Still, the S&P/ASX All Technology Index (ASX: XTX) has lifted nearly 1% in the past week of trade, showing buyers are active.
So, is now the time to buy ASX tech shares? Let's see what the experts think.
Hedge funds double down on tech shares
According to a note from Goldman Sachs prime brokerage services, hedge funds bought US tech stocks hand over fist last week.
The broker says these funds – known for their higher risk appetite and use of leverage – have been piling into tech and media stocks.
The catalyst for the buying spree? The Fed's highly anticipated 50-basis point rate cut – a move that could make borrowing cheaper and reignite consumer spending on tech products.
Buying from these hedge funds is likely exacerbated by expectations of a continued decline in interest rates, according to Reuters.
Higher interest rates increase the cost of borrowing, putting pressure on tech stocks that need to fund expansion and innovation. Lower borrowing costs naturally mean the opposite.
Corporate finance also tells us that company valuations are highly sensitive to interest rates – especially those with growth expectations way out into the future, as is often the case for ASX tech shares.
While this frenzy has been focused on US stocks, Australian investors might wonder if similar opportunities exist for ASX tech shares.
However, unlike the Fed, the Reserve Bank of Australia (RBA) kept the cash rate steady at 4.25% in its policy meeting last week.
Here's where the challenge lies: Inflation in Australia remains above target and "is proving persistent", so the RBA doesn't expect it to sustainably return to its 2-3% range until 2026.
This persistent inflation means interest rates are likely to stay elevated unless there's a change in the data. The RBA itself directly says, "the outlook remains highly uncertain".
Taken together, the latest data do not change the [RBA] Board's assessment at the August meeting that [Monetary] policy is currently restrictive and working broadly as anticipated.
But there are uncertainties.
Is now time to buy ASX tech shares?
Analysts are bullish on a number of ASX tech shares at the time of writing. Bell Potter, for instance, rates Light & Wonder Inc. (ASX: LNW) a buy with a $161 price target after its recent sell off.
Meanwhile, the broker, along with Goldman Sachs, also rates Life360 Ltd (ASX: 360) a buy, with price targets of $20.50 and $19.75 apiece, respectively.
But for those with a long-term outlook, experts agree that buying high-quality stocks of any sector – including ASX tech shares – seems to be the best strategy.
Richard Temple of Lazard Asset Management says that owning shares over the long-term is "among the best investment options".
"[B]ut", Temple says, "it is important to be fully invested through the cycle and to not try to time the markets".
With that in mind, the core principles do not change – staying invested, thinking long-term, not trying to time the market.
Foolish takeaway
The hedge fund buying frenzy in US tech stocks highlights the global appetite for tech. Consequently, ASX tech shares are heavily on watch.
The All Technology Index is up nearly 27% this year to date, having jumped 37% in the past year.
