Technology 2012 Outlook
It grieves me greatly to yet again start a technology outlook piece with a view on the macro economy. Sadly, I fear it will be macroeconomic factors that trump stock selection again so we will begin here.
Asset markets of all descriptions have given investors quite a wild ride over the last twelve months. The already poor situation in peripheral Europe continued to deteriorate dramatically with the infection increasingly penetrating into core countries, with contagion effects increasingly visible in the European banking sector. The policy reaction, driven mostly by a desire to save the euro, is violent austerity measures, driving peripheral countries into even deeper recessions. Added to this has been a couple of major environmental catastrophes, an earthquake and tsunami in Japan and major flooding in Thailand which both have had major effects on supply chains, especially technology. Finally, and most worryingly, as we have been predicting for some time, certain emerging markets are starting to see the negative effects of the wave of Western money printing that washed up on their shores. They now face the difficult position of controlling inflation and property bubbles in a challenging macro environment. This, to my mind, is as great a risk to equity market returns next year as European sovereign default – the latter while much more likely, is more fully appreciated by markets. Most investors still seem to think that emerging markets will continue to grow robustly. When bubbles burst it is rare to go from 10% GDP growth down to 8%, so while the chance of an emerging market shock is lower than a European one, it will be a much nastier surprise if it happens.
However, it is not all doom and gloom. The one major bright spot in the world economy is the USA. Here economic news has been getting consistently better, especially in the second half of the year, with signs of stability in the housing market. Corporate balance sheets globally are in a dramatically better position versus the financial crisis. Finally, and most importantly for the short term, global policy makers and central banks are employing increasingly desperate measures to drive up the stock markets rather than fix the fundamental flaws in the global economy. Dramatic attempts at money supply increases are being adopted everywhere, with even the previously stubborn ECB gradually being drawn to it, as long as it is not openly called money printing.
In all of this we are probably telling you little that you do not know already or that has been commented on by better macro economists than us. It is important to point out, however, that macro factors will still, we believe, be the primary driver of absolute returns. On a relative basis we believe that technology offers a good risk/reward trade for investors in most macroeconomic outcomes. In the short term, macro news overall is well appreciated by markets, but there may be some disappointment with near-term technology earnings reports that may make relative performance more challenging for the sector. The longerterm structural imbalances of the global economy have still to be addressed, so it is hard to be overtly bullish in the mid to long term, despite very low valuations.
Sector Specifics
Semiconductors
Semis were a mild drag on performance for our technology fund, entirely due to our underweight position in Intel, which has continued to perform despite a weak PC market. We are getting convinced that despite the structural headwinds they face, their dominance of the PC and server markets and resulting pricing power means that it is hard to justify an underweight position and have increased positions accordingly. The fund now finds itself in the unusual position of being very moderately overweight in semiconductors. This is a change from a long standing (and profitable) structural underweighting in the sector. Why? While the industry has dramatically de-rated over time, a number of things have improved structurally in the industry. Firstly, these businesses are simply much better managed than they were historically. Production levels and inventories are now adjusted quickly (and often brutally) to any signs of slowing demand. Cost structures have become a lot more flexible and balance sheets are generally quite strong, with many weaker players having either exited or been acquired. Finally, semiconductors continue to penetrate our everyday lives, with more and more digital devices with more and more silicon content being purchased by consumers and businesses every year. Within the sector, we favour well managed, broadly diversified semiconductors such as Texas Instruments and Analoge devices, and companies tied to growth in connectivity (one of our major themes) such as Samsung, Altera and Sandisk. Our macro worries, especially related to emerging markets, keep us from going aggressively overweight at the moment.
Lesen Sie weiter im PDF-Dokument.
powered by 
