Big investors have been using a plunge in global markets as a chance to snap up technology and other stocks, betting that forced selling by some traders and panic about global growth have thrown up rare bargains.
Investment managers at BlackRock, UBS and Vontobel are among those hunting for cheap stocks after Monday’s sell-off, with Japan’s Topix suffering its worst sell-off since “Black Monday” in October 1987 and Wall Street’s S&P 500 index falling the most since September 2022.
Much of the opportunistic buying has focused on megacap tech stocks, as sharp falls after the open on Monday gave investors a chance to buy into stocks that had been rising for most of this year.
Chipmaker Nvidia, for instance, fell as much as 15 per cent to just above $90 at one point, taking it back to levels seen in the first half of May, while Apple tumbled as much as 11 per cent.
On Thursday the tech-heavy Nasdaq Composite rebounded 2.87 per cent.
Stephen Yiu, fund manager at Blue Whale Capital, which is backed by billionaire investor Peter Hargreaves, said he had been making “opportunistic” purchases of Nvidia at $95 when the market opened on Monday.
“There’s a narrative in the market, which we disagree with, that there are signs of a slowdown in terms of AI applications,” he said, pointing to comments from hedge fund Elliott Management, which told investors that Nvidia was in a “bubble” and AI was “overhyped”.
“We think it’s too early to call that,” said Yiu. “There are enough developments to show that actually generative AI is going to be game-changing.”
Clare Pleydell-Bouverie, a fund manager at Liontrust, added to her positions in Facebook owner Meta and Amphenol, a US producer of electronic and fibre optic connectors, in the sell-off.
“With valuations reset following a brutal sell-off, we believe that some babies have been thrown out with the bathwater,” she said, adding that “Meta is in a minority of companies reaping the benefits of AI deployment at scale today.”
Hedge funds piled into US tech stocks on Monday, with their biggest one-day buying in around five months, according Goldman Sachs’ prime brokerage. Semiconductor and software companies were among the most sought after names.
Ben Powell, chief investment strategist for Apac and the Middle East at the BlackRock Investment Institute, said he was “looking for opportunities in the tech space”, with the so-called Magnificent Seven megacap tech stocks among his preferred picks.
UBS Global Wealth Management said on Thursday that the fundamentals of tech stocks remain “solid” and the sell-off provided an opportunity to increase exposure.
Analysts say that the sell-off was exacerbated by forced selling by quantitative funds that keep strict limits on risk.
Deutsche Bank analysts pointed to trend-following portfolios, so-called “volatility control” funds and other computer-driven strategies all cutting their exposure to equities — as well as bonds and commodities — as the sell-off took hold last Friday.
That was triggered by rising equity market volatility, which hit its highest level in more than a year last Friday before soaring to its highest since the early stages of the coronavirus pandemic on Monday.
Volatility control funds, which buy when markets are calm and sell during periods of turbulence to try and minimise losses, had by Monday trimmed their equity exposure to the lowest since November, according to Deutsche Bank data.
Citi, Invesco and UBS have all spoken in recent days of the “opportunities” in stocks presented by forced selling. Morgan Stanley said on Thursday that investors should take the opportunity to buy “standout AI winners” in Europe, including chipmakers BE Semiconductor Industries and ASML.
Dan Scott, head of the multi-asset boutique at Vontobel, has also spent much of this week adding to positions in US and European large caps, claiming that, despite July’s weaker than forecast US jobs data, the macroeconomic outlook has not really changed.
“When the sell-off carried over into this week, I asked our investment committee if we should . . . do something about this,” he said.
“We see a great opportunity to load up on more equity that we already have in the portfolio, mostly in the US because of quality and transparency on earnings. We’re not crazy risk-on but we have been buying names already on our list.”
Other investors have been drawn to Asia.
“If you look at the sell-off we’ve seen in Taiwan and Korea, smaller markets, but pretty central to the tech ecosystem . . . Their sell-off [on Monday] was also fairly dramatic,” said BlackRock’s Powell. “And that would also be on our watch list.”
Monday’s 12.2 per cent plunge in Japan’s Topix — which was followed by a sharp rebound on Tuesday — also created buying opportunities for some.
“We did our buying on Monday, spending what cash we had,” said Peter Tasker, co-founder of Arcus Investment in Tokyo, who added that Japan’s equity market had suddenly looked “extremely cheap”.
Additional reporting by Ortenca Aliaj