Taking a tech view of the Trump/Xi approach

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William de Gale
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William de Gale

Have Mr Trump and Mr Xi managed to trigger a global recession by pushing the world's greatest trade partnership too far off balance? Looking at activity in the technology sector, the answer to that would still seem to be "no" … or a least "not yet".

June quarter reporting season, which is currently drawing to a close, is normally somewhat underwhelming. However, 2019 has proved an exception, as the general picture has been of reasonable June quarter results but very cautious September guidance, often explicitly as a result of US/China trade uncertainty, as well as the status of orders from Huawei.

The risk for investors is that Trump has miscalculated, with Chinese retaliation and economic uncertainty pushing the US economy over the edge into recession before he can engineer a trade deal, while the Fed digs in its heels until too late, in an effort to prove its independence.

In contrast to broad global equity markets, the technology sector is volatile but achieving new highs on each occasion.  We continue to believe that this positive trend for the sector is due to its near monopoly on profit growth for the past eight years, which in turn is the result of an ongoing fundamental change in the way that technology operates - the Direct Connection of computers to the real world.  The explosion of viable applications that this change enables is only getting started, suggesting that technology will continue to steal the growth from the rest of the market, and thus continue to outperform. 

We continue to believe that surprises are currently as likely to be on the upside as the down, at least as far as the Information Technology sector is concerned.

 

William de Gale is a portfolio manager at BlueBox Asset Management