Is Aussie Tech the Next Big Investment Wave?

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On Friday I had the opportunity to attend the TechKnow Invest Roadshow. The event spanned the entire day, with various Aussie tech start-ups presenting. DJ Carmichael, a stock broking firm, kicked things off with their introduction to investing in tech.

Michael Eidne, representing the firm, highlighted the phenomenal performance of investing in technology:

On a 10 year basis the [their] technology index is still way ahead of the world total return index showing that technology remains a far superior investment over the long term.

Eidne went on to say:

It’s been a rocky start to the year and equity values have taken a beating, Globally technology companies suffered along with the rest of the market and were not immune to the downdrafts … [However] technology companies are almost back to where they were at the beginning of the year, and in fact the technology index is slightly ahead of the world index at this point in time,’ Eidne said.

And while this may be true for global tech stocks, our own ASX 200 Info Tech index is still down. The S&P/ASX 200 Info Tech index (^AXIJ) is down more than 8% this year.

ASX tech index 11Apr16



However, this might just be a period of very cheap tech stocks. DJ Carmichael stated that their outlook for earnings remains positive. They showed their global tech EPS growth estimates for the next two years. They believed EPS growth could each almost 40% year-on-year by 2018. It’s quite considerable when EPS growth was only slightly about 20% for 2015.

We are still seeing a lot of emerging technology companies wanting to come into the market. While the volume of interest has increased we still remain steadfast in applying our quality screen to make sure the companies we work with will ultimately succeed and provide a good return for investors,’  Eidne said.

There’s no denying that technology is a big part of how we live our lives. But what might spur on tech investment for the future is our ever-growing tech dependency. And it’s not a bad thing either. Advances in technology improve everyone’s lives. Whether its impact is small or large, tech advancements benefit us all.

Robotics is just one area of tech that changes our day to day lives. The graph below shows productivity versus hourly compensation.

productivity vs compensation 11Apr16

Source: Economic Policy Institute

Up to 2013 productivity had increased by more than double than that of hourly compensation. Why? It’s not because companies are cutting wages; it’s robots that are increasing our abundance of goods and services…not to mention making us super-efficient.

But it might be discomforting to think that robots will take our jobs one day. Yet this has immense beneficial applications for nations like China. Most of us know that a lot of goods are produced in China. Why? Because labour wages are low.

Yet China’s low wages may not stay at these levels for long. The graph below shows rising exports from China, and rising monthly wages within China.

China wages 11Apr16


Source: The Economist

One solution to keep China competitive in the manufacturing world is to employ more robots. And the possibilities are much wider than just manufacturing. Any labour intensive process could be enhanced by robots.

Let use the example of bricklaying.

Bricklayers have a backbreaking job. The average bricklayer can lay around 300–500 bricks a day. And it takes around six to eight weeks to build a house.

But let’s put this into a monetary perspective. The rates early last year in Sydney were around $1.50–1.90 per brick.

Using simple math, this equated to a minimum of $450 per day. But if we introduce robots into the mix the costs drop significantly.

A company called Fastbrick Robotics [ASX:FBR] focuses on developing a solution to brick laying, in the form of robots. Fastbrick Robotics is able to build a house in two days. And Fastbrick Robot’s CEO Mike Pivac believes their robot could save ‘home buyers $20,000 to $30,000.

And we are just talking about robots. There are countless other advances happening in technology every week. Even though Aussie tech stocks may be battered by market volatility, there could be opportunity for investors to find returns on the back of Aussie tech start-ups.

Härje Ronngard,
Junior Analyst, Money Morning

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