The US has FAANG, China has BAT and Australia has WAAX

WAAAX – Wisetech, Altium, Appen, Afterpay and Xero

Few investors could have failed to notice the rise of the tech sector in the US in recent months. In the last quarter Facebook, Amazon, Apple, Microsoft and Google were responsible for more than 50% of the 3% SP 500 return, whilst global equities have continued to experience trouble this year. Information technology is the most dominant sector in the in the US equity market, but Australia’s tech sector is often forgotten. The sub index only represents around 2% of the ASX 200 so is often overlooked, but this is not to say there are not growth opportunities.

In our Q3 report, Saxo’s Head of Equity Strategy, Peter Garnry, recommends investors to stay overweight software within the tech sector. Peter notes that tech companies have low leverage, making them less sensitive to interest rate changes. Additionally, the sector has a high return on invested capital relative to others. Whilst the sector is trading at a valuation premium of 27% relative to global equities, this seems like a fair premium to pay for a sector that continually delivers growth on earnings, and Australia is no exception to this. 

Throughout the past year Aussie tech stocks have been among the best performing stocks on the ASX 200. The information technology sector outperformed the miners, the financials, and the index itself, returning around 30% in the past year. We remain positive on software companies and recommend investors are overweight this sector. Australia is no exception as there are some good quality stocks in the sector that we expect to deliver on growth.