Tough year for tech, ESG to turn around in 2023

Yasmine Raso

Senior Journalist, Financial Newswire

7 December 2022

Technology stocks and environmental, social and governance (ESG) investment considerations have seen a challenging year but have been touted by Federated Hermes to experience a significant turnaround in sentiment.

James Rutherford, Head of European Equities at Federated Hermes, said the technology sector has been “punished with major losses” mainly in the U.S. with Apple on a hiring freeze and Amazon, Twitter and Meta all laying off staff.

“Some of the year-to-date decline is justified and driven by weak volumes of smartphones and PCs as well as fears of a correction in general IT spending. The other (and we suspect, more significant) contributor to the YTD tech sector declines is the rise in interest rates,” he said.

“With eyes mostly on the US, we suggest looking to Europe where we are bullish on the sector for 2023. When the investors time horizons shorten, technology underperforms; and when time horizons lengthen, technology outperforms again.

“In our view, 2022 so far is clearly characterised by short-term market mood swings. We are leaning against that wind.

“Despite the current macroeconomic and geopolitical uncertainties, our eyes are firmly on the longer-term secular themes which we believe will reward the technology sector with substantial alpha. These trends include the rise of AI, automotive electrification, cloud adoption, and industrial decarbonisation.”

CIO of Private Equity, Peter Gale, also said 2023 will showcase the innovations of companies that have managed to adjust and adapt to higher inflation and interest rates.

“The pandemic catapulted organisations into the future with the workplace changing overnight and today’s macroeconomic backdrop is driving businesses further to innovate and embrace technological change.

“Companies that provide tech infrastructure and solutions to boost productivity can build profitable models with strong unit economics, even in a tough macroeconomic environment.

“2023 will be a formative year for innovative, growth-oriented companies, and the investors backing them, and we expect to look back and marvel at the variety and criticality of technologies and solutions brought to the market. While turbulence and disruption are a bedrock for innovation, the prism though which investors – in private equity, in particular – assess deals is also shifting.”

Head of Responsibility, Leon Kamhi, also highlighted expectations of the “weaponisation of ESG by both its promoters and detractors for commercial or political purposes” to continue into 2023.

“Well-intentioned regulators seeking to protect investors and get a grip on greenwashing have likely added to the turmoil with unclear and significantly burdensome requirements which are unlikely to help develop a sustainable economy,” he said.

“2023 is likely to bring more of the same. Still, an alternative outlook would be to see investment responsibly working to support the creation of wealth for investors – sustainably. Investment with a laser focus on the interests of investors and undistracted by political aims or virtue signalling.”