Investors bet on a quiet tech revolution in Europe

AP Photo/Richard Drew

AP Photo/Richard Drew

Published Apr 1, 2017

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London - It's not banking or mining

shares, but rather technology stocks, that have come up trumps

in Europe this year and are poised to end the first quarter as

the best-performing sector.

European tech companies often pale in comparison to the

glamour of peers across the pond such as Facebook, Snap

Inc and Amazon, and are dwarfed in terms of

market value. The US sector, at $4.3 trillion, is worth more

than eight times Europe's.

Investors, however, have been quietly buying into a European

industry they see as being at the heart of disruptive digital

developments across a slew of sectors.

Tech stocks in Europe have risen nearly 12 percent

in the first quarter, outstripping the broader market,

which is up 4.8 percent, and also their performance in the first

three months of last year when they fell 5.4 percent.

Driverless cars, iris-scanning technology and augmented

reality are just a handful of the themes at play globally in

which European companies such as STMicroelectronics,

Infineon Technologies and SAP are involved.

Many European software firms are involved in corporate

back-offices, keeping systems efficient and running - a less

headline-grabbing side of the tech sector but one that can be

important for companies across all industries looking to cut

costs.

Tech stocks lead way in Europe. Graphic: Reuters

"Every consumer is exposed to Google, or Facebook, or

Twitter ... something like SAP, which actually is in most

corporations, is less visible to the end consumer," said Marcus

Morris-Eyton, European equities portfolio manager at Allianz

Global Investors. Tech now accounts for nearly a quarter of

Morris-Eyton's portfolio, and SAP is his biggest position.

Automation

The mining sector was the standout performer in Europe over

the course of 2016, gaining 61.9 percent, followed by oil stocks

which rose 22.9 percent - far ahead of technology firm shares

which were up 3.4 percent.

Banking stocks endured a turbulent first half, dragged down

by problems in the Italian sector, but after hitting a low in

July they rallied almost 47 percent to the end of the year.

These trends were expected to continue into 2017, but so far

banks are only up 4.6 percent in the first quarter, miners are

up 6.2 percent and oil stocks are down more than 3 percent.

Read also:  Snap shares plummet after debut

Like many sectors, the commodities and financial industries

have since last week been hit by investor concerns that U.S.

President Donald Trump may not be able to deliver on all his tax

and infrastructure pledges, after his healthcare plans were

blocked.

Tech is less exposed to immediate political and economic

developments, according to analysts, and are more governed by

long-term global trends in technologies such as automation,

driverless cars and augmented reality.

"(In tech) there's always this level of innovation that

keeps people engaged and keeps people investing for those

opportunities almost irrespective of the economic cycle," said

Steve Sherman, senior portfolio manager at BNP Paribas.

Flows into tech have been strong globally, with tech

sector-focused funds seeing the biggest inflows year-to-date

since 2009, according to data from Bank of America Merrill

Lynch.

Likewise Europe-listed robotics and automation

exchange-traded fund (ETF) ROBO hit a new record high

last week and saw record monthly inflows in February of $80.6

million. ABB and Krones are among its top 10

holdings.

Time of flight

The move towards digitization across industries has market

participants particularly excited.

Morgan Stanley analysts highlighted SAP's S/4 HANA

enterprise cloud software which helps integrate data and

applications, and also its new product line for the "internet of

things" (IOT) - where everyday objects are connected to networks

to send and receive data.

At Evenlode, one of Britain's best-performing investment

funds last year, portfolio manager Hugh Yarrow holds stocks such

as Sage and Relx whose digital analytics are

being increasingly used in law, accountancy and finance.

In more traditional sectors of tech, chip makers such as

Infineon, STMicroelectronics and ASML

are closely linked to Apple and the iPhone

cycle. Infineon shares have surged to a record high.

US vs European tech sectors. Graphic: Reuters

Stuart Mitchell, manager of the SWMC European Fund at S.W.

Mitchell, is betting big on STMicro. The stock, up 33 percent

this year, is the fund's biggest holding.

Mitchell said that he became interested in the stock when

its share price fell after its loss-making set-top boxes

business went belly up last year.

He reckons STMicro's role in the auto industry with its car

chip business and time of flight (TOF) technology - which is

used in sensors - means it will surprise with its quick growth.

Neil Campling, global head of TMT Research at Northern Trust

Capital Markets, said he expected opportunities in areas such as

semiconductors, automated vehicles, sensors and virtual and

augmented reality.

"The tech industry in Europe may not be as big in terms of

revenue ... as the US is, but it has a critical role to play

in basically what is, without doubt, a digital revolution that

is global in nature," he said.

REUTERS

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