Tech rout deepens as banks, miners push ASX to record high

Worries about the impact of artificial intelligence and a slew of corporate profit reports whipsawed through the S&P/ASX 200 on Thursday even as Australia’s flagship index hit a record intraday high of 9105 points.

The all-time record for high shares driven by investors buying the largest banks and miners disguised another plunge in the value of technology businesses. The S&P/ASX All Tech sector tumbled 6.2 per cent on the day, to head for its seventh straight month of losses and a 42 per cent plunge in six months.

“Parts of the market are becoming a little binary,” declared veteran fund manager and K2 Asset Management investment chief George Boubouras. “As really, the market’s unsure if AI will be a positive, or negative, for lots of companies. And we’re getting really violent share price moves.”

Wild share price swings

The AI uncertainty sent cloud accounting business Xero 8.4 per cent lower to $76.92 and software logistics business WiseTech crashed 6.6 per cent.

Medical imaging software group Pro Medicus cratered 23.9 per cent to $129 as its half-year profit of $90.7 million missed analysts’ expectations, with the stock down 59 per cent in six months. On Wall Street Sydney-founded $US23 billion software business Atlassian fell 6.4 per cent to take its losses to 72 per cent over the past year.

Elsewhere on the ASX, $24 billion online property portal REA Group tumbled 4.5 per cent on no news. While online furniture retailer Temple & Webster lost one third of its value in a $1.4 billion wipe-out, after its profit plunged 36 per cent over the six months to December 31.

“We’re in a world where the death of active management, and the rise of automatic, systematic, momentum driven (trading) strategies is exacerbating movements and creating ‘air pockets’ for stocks,” said Aequitas Investment Partners chief investment officer David Berthon-Jones.

“This isn’t a normal market,” he added. “But the software sell-off is deserved, most of these names were overvalued trading at (profit) multiples that far exceeded any plausible estimate of the kind of earnings growth they could realistically generate over the next few years.”

Investors buy banks, miners, BHP, Rio hit record high

The relentless selling in tech stocks led investors to buy banks, miners, healthcare, industrial, and transport businesses as an alternative trade, said Mr Boubouras.

“But what we do know is the benefit of AI is productivity gains at the aggregate level, so it supports GDP growth and aggregate earnings for companies,” said Mr Boubouras. “As the US has productivity growth it’s also non-inflationary and the market likes it. So, the AI productivity gains are transferable to healthcare, transport, and financials.”

On Thursday, share market investors also bought iron ore, copper, and gold miners in a move that helped push $264 billion mining giant BHP to a record high of $52.62. Its rival iron ore and copper miner, Rio Tinto, added 2.3 per cent to a new record high of $168.78 on a total market value of $238.2 billion.

“For fund managers, now BHP and Rio are just good value plays, low multiples, and high cashflows to return capital, and this is the rotation people have waited for years for,” said Mr Boubouras.

“The Australian banks are benefiting from higher rates and benign bad debts, they also benefit from AI as the market thinks they can take costs out as with ANZ. But Australia still has a (rising interest) rate headwind as zero productivity growth plus expanding GDP will equal inflation.”

Another one of the biggest losers on the benchmark index on Thursday was asset manager and bank AMP Limited. It cratered 31 per cent after its disappointing profit report shocked investors and it revealed chief executive Alexis George will leave the group

The chaos linked to rapid shifts in technologies and strained geopolitics has also resulted in chief executives from blue-chip S&P/ASX 200 businesses Lendlease, ASX, and CSL all announcing they would leave their roles this week or in the near future.