A surprise on the tech companies market

We compare the biggest tech companies in the US, Europe, China and other emerging markets (EM). They include the largest index companies, but they differ significantly from each other. The tech industry in the US and China focuses on online platforms, other markets on hardware, and Europe on two sectors - software and payments. This results in diversified results, a different level of margin and differences in valuation (see table).

The technology industry is the largest segment of the market in the US and China - 52-58 percent. compared to 42 percent. in emerging markets (excluding China) and "only" 25 percent. in Europe. But Europe is, in terms of performance and valuation, a big surprise in our analysis, China is not cheap enough and the US FAANGM (Facebook, Amazon, Apple Lossless Audio CODEC (ALAC),, Netflix, Google - Alphabet, Microsoft) well placed.

About the author

Ben Laidler - global markets strategist in eToro. Capital investment manager with 25 years of experience in the financial industry, incl. at JP Morgan, UBS and Rothschild, including over 10 years as the # 1 investment strategist in the Institutional Investor Survey. Ben was the CEO of the independent research firm Tower Hudson in London and previously Global Equity Strategist, Global Head of Sector Research and Head of Americas Research at HSBC in New York. He is a graduate of LSE and Cambridge University, and a member of the Institute of Investment Management & Research (AIIMR).

European surprise

The European technology basket has the best results this year (+38%), the highest valuation (37 × 12-month P / E - Price / Earnings) and the second-best earnings forecasts (+ 25%). The high valuation partly reflects 1) the relative shortage of industry companies in European equities and 2) fewer regulatory hurdles compared to the US, especially China. Our European basket includes companies from ASML (ASML) and SAP (SAP.DE) to Infineon (IFX.DE) and CapGemini (CAP.PA).

Chinese context

China's eToro technology basket has fallen 15% this year as regulatory tightening continues. This lowered its P / E valuation by a quarter to 28, but still not far from the 31-fold for US FAANGM, despite earnings uncertainty. This is well above 19x for emerging markets (with a significant share of hardware manufacturers) led by Taiwan Semi (TSM) and Samsung Electronics (SGL). The situation for FAANGM looks good, with relatively attractive valuations, strong growth and a small share of debt on the balance sheet.

For great tech themes, see CopyPortfolios @ Four-Horsemen, @ Chip-Tech i @ChinaTech.

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