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Keep an eye on your tech stocks

February 14, 2025 | 2 min read
Seema Shah
Chief Global Strategist
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This article originally appeared in The Sunday Times, February 8, 2025.

Investors have a decent record in ignoring warning signs. In the wake of any big market sell-off, legions of sages have tended to pop up and lament, after the fact, that “the warning signs were there.” Yet the lead-up to each of these reverses has usually been a period of carefree investor exuberance. In other words, if the signs really were there, very few people were paying attention.

So far, 2025 has provided a slew of warning signals. These don’t presage some impending market crash, but they do point towards something serious — namely, the risk of assets being insufficiently diversified in many investors’ portfolios and their vulnerability to a correction, or even slowing earnings, in the tech sector.

The first, and most obvious, warning signals are, well, actual warnings. At the World Economic Forum in Davos last month, Nicolai Tangen, head of Norway’s $1.75 trillion (£1.4 trillion) sovereign wealth fund, said the most urgent danger is the concentration of the “Magnificent Seven” tech giants in portfolios.

The next red flag was the sharp drop in tech share prices two weeks ago. This followed the revelation that the Chinese start-up DeepSeek can seemingly rival the performance of big AI players such as OpenAI and Meta at a fraction of the cost.

And last week we received confirmation that erratic is likely to be the new normal in financial markets during the presidency of Donald Trump. When they opened on Monday, global stock markets lurched downwards as the US slapped punitive taxes on Canada, Mexico, and China. By the end of the same day — after friendlier-than-expected chats between Trump, Claudia Sheinbaum of Mexico and Justin Trudeau of Canada — tariffs had been put on hold and markets rebounded.

Second-guessing the decisions of a president who views his unpredictability as a strategic asset is fraught with peril. While stocks regained some of their initial losses, investors remain on high alert over what might be announced next.

Up to 10 per cent of UK pension assets will probably be invested in the Magnificent Seven and almost a quarter will be in US equities, which are skewed towards tech.

If a trade war develops, the US tech sector could quickly become a geopolitical football. I believe more and more fund managers will latch onto the idea that greater returns could be unearthed elsewhere.

My suspicion is that financials will build a bigger fan club as investors seek to address concentration risk. The most recent earnings for US and European banks revealed blockbuster profits. Conversely, Alphabet shares dropped 10 per cent last week following weaker than expected revenues this week.

If ever there were a moment for investors to ensure their portfolio is diversified, it’s now.

Sunday Times article link: https://www.thetimes.com/article/d04a6ad4-9591-4bc5-b50b-ca045e408400

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Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. Asset allocation and diversification do not ensure a profit or protect against a loss.

Views and opinions expressed are accurate as of the date of this communication and are subject to change without notice. This material may contain ‘forward-looking’ information that is not purely historical in nature and may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information in the article should not be construed as investment advice or a recommendation for the purchase or sale of any security. The general information it contains does not take account of any investor’s investment objectives, particular needs, or financial situation.

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