With any kind of financial investment, whether its spread betting or forex trading, you must have a decent level of knowledge about the market in order to generate impressive returns. But when it comes to buying stocks and shares, an understanding of the organisation or industry you are backing is even more important.
However, the current strength and future potential of the technology sector is obvious for all to see. Last year, the Technology Select Sector SPDR exchange-traded fund (XLK) and the Vanguard Information Technology ETF (VGT), which are the two largest tech ETFs, returned about 3 per cent.
In addition to the growing footprint of notable brands such as Facebook, Apple, Amazon, and Netflix, the sector’s earnings growth can also be attributed to share buybacks too. Even so, the coming months look like they could be even more profitable. But what will cause tech shares to thrive?
The soaring popularity of smartphones
In addition to the fact that global smartphone penetration is hovering around the 50 per cent mark, mobile users are constantly upgrading their devices too. This means that manufacturers are constantly developing more advanced and innovate handsets to meet the needs of consumers.
“The normal, excessive growth of technology replacing old technology and expansion of middle class and businesses globally will drive share prices higher,” says Ron Weiner, president and CEO of RDM Financial Group. “Businesses need to keep innovating with technology to keep costs down and stay competitive.”
The rising demand for apps
One of the reasons why Facebook will extend last year’s success into 2016 is because it continually introduces new products or services to the market. Currently, the social network is working on artificial intelligence and virtual reality apps to satisfy the desires of smartphone users.
“Long-term, because of its willingness to acquire new technology and not force-fit itself into a pre-conceived market strategy, Facebook will win based on its agility,” notes Steve Andriole, professor of business, accountancy and information systems at Villanova University.
Online shopping in emerging markets
Another company that could become even more powerful in 2016 is Amazon, as the growth potential for online shopping in emerging markets is huge. At this moment in time, emerging markets don’t tend to do much online shopping, but things could change if Internet penetration increases as its predicted to.
“We would not be surprised to see 20 per cent of all retail sales (become) web-based,” a Credit Suisse analyst wrote in a 428-page 2016 Global Equity Strategy report. A big chunk of these purchases are taking place on mobile phones too.
The fight against cyber crime
You would think that the growing threat of cyber crime could damage the reputation of tech companies. However, it actually plays directly into the hands of enterprises that develop security solutions like anti-virus and data recovery software.
In a survey by Bank of America Merrill Lynch, chief financial officers revealed that the most common risk management programs currently in place are data security (91 per cent), disaster coverage/protection (84 per cent) and other types of fraud (77 per cent). The answers to the problem with the tech sector also, it seems, lie in the tech sector.
