Technology sector under pressure: While a detailed list of Chinese imports targeted for up to $60bn worth of tariffs is yet to be published, the tech sector is believed to be among them. This, coupled with data privacy issues led to a coordinated sell-off in US and Chinese technology stocks.
From the bottom of the February correction, it took the global tech sector only 21 sessions to re-establish new all-time highs (and US tech stocks just 12 sessions). Citi analysts expect the Tech sector to bounce back after the correction in March as well.
Demand is likely to remain strong for technologies including smartphones, tablets, social media, robotics and artificial intelligence. Citi analysts expect low double-digit EPS growth for the information technology sector overall in 2018. Although the sector’s forward price-earnings ratio of 18.5x is trading at a 10% premium to the MSCI World, it is less than half of the 47x PE experienced during the tech bubble in 2000.
Emerging Markets were largely resilient: During the market volatility in February and March, Emerging Markets (EM) equities outperformed Developed Markets (DM), given EM dependence on overseas revenues are roughly half of DM. Citi analysts have been overweight EM regions since March 2017 and maintain a strong conviction.
EM Asia remains one of Citi’s biggest relative overweight positions. Asia has experienced currency strength even with Fed tightening. This reflects significant balance sheet improvements since the Asian crisis two decades ago as well as more recent actions to cap risks in China. The Fed and US policy could still drive a setback in Asia, however solid domestic economic growth and low valuations are supportive.