Cryptocurrencies and tech stocks go down.  What does this mean for your investments - Wataniya |  Globalnews.ca

Cryptocurrencies and tech stocks go down. What does this mean for your investments – Wataniya | Globalnews.ca

Early in the COVID-19 pandemic, rising tech star Shopify became Canada’s most valuable company, beating founding player Royal Bank of Canada for the top spot.

But in the past six months, shares of the Ottawa-based e-commerce giant have lost nearly 80 percent of their value on the Toronto Stock Exchange.

So what went wrong?

The company said last week that it was still increasing revenue, but that growth was the slowest in any quarter since it went public in 2015. Its earnings also missed analyst expectations. On the same day, the company announced the largest acquisition in its history, a $2.1 billion acquisition of a logistics company, as it plans to expand its fulfillment network.

“We see the current market landscape unwilling to reward high-growth companies like Shopify looking to sacrifice all profits at the expense of growth,” CFRA analyst Angelo Zino said last week.

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Shopify is not alone.

Tech giants including Netflix and Facebook’s parent company Meta — companies that, like Shopify, have seen massive gains during the pandemic — have seen their ratings drop sharply since the start of the year.

The Nasdaq’s high-tech composite loss of 25.7 percent for 2022 so far is steeper than the loss of other indices.

It’s not just that the companies themselves see bumps in the road, says Derek Dedman, vice president and portfolio manager at WDS Investment Management in Ottawa, but that the market itself has changed radically.

Here’s what some analysts say behind the tech stagnation.


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Recession fears scare tech investors

Inflation is at its highest levels in decades in Canada and most other parts of the world, and central banks are largely heading into a violent interest rate raising cycle.

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Market watchers are worried about an upcoming recession, Dedman says, which is driving investors away from so-called “growth stocks” like technology companies with higher valuations.

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These stocks are the stocks that tend to fall “far and faster when you know what hits fans,” he told Global News.

But selling technology isn’t necessarily a reflection of whether a company is good or bad, and Shopify is a “great example” of that, says Dedman.

Back in November, when the company was trading at all-time highs of more than $2,200 per share in TSX, the market was “perfectly priced,” he said.

Today’s downturn doesn’t necessarily reflect that Shopify’s fundamentals have changed, but it’s an admission that the market won’t continue to grow in the same way it did during the pandemic, when interest rates were low and online commerce was booming.

“Once the stock is priced to perfection like this, any kind of traffic light along the way, any kind of dip in earnings or any headwinds that turn into headwinds…will revalue the stock,” he explains.

“So it’s not that these companies are suddenly bad companies. It’s more about anticipation.”

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Cryptocurrencies and other digital assets are rapidly losing value in recent times. For example, Bitcoin has lost more than half of its value since its November highs.

Dedman says cryptocurrencies can be similar to tech stocks in that their value derives more from expectations than from fundamentals.

“Once something goes higher, it’s kind of going down even more when times change,” he says.

Some crypto-watchers have not been deterred by Bitcoin’s recent crash and have encouraged others to “buy the dip” – picking up an asset when it dips in the expectation that it will rise again to previous highs.

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But others say that the cryptocurrency market, which has seen a lot of uptake during the pandemic, has not been fully tested by the price environment.

“This isn’t the first time we’ve gotten to that level and the risk-reward ratio of getting bitcoins here has been pretty good in the last year or so, but we see a different macro background,” Matt said. Dibb, COO of Stack Funds, a Singapore-based crypto platform, in an interview with Reuters.

However, Bitcoin and other crypto assets that follow the trend of traditional markets may not be the worst for the longevity of the products.

“In my view, two-way price action and occasional breakouts are healthy for markets, including cryptocurrencies,” said Brandon Neal, COO of Euler, a venture that allows crypto-asset lending and borrowing.

“We have never seen digital currencies in a recession, and no one is guessing what will happen,” he added.

What should I do with my wallet?

The turmoil in the market so far in 2022 may be a nuisance to some investors who have jumped into stocks during the pandemic, when rates were at their lowest and high valuations were the rage.

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A Morgan Stanley note to clients this week indicated that retail traders — direct investors who buy individual stocks or funds rather than working with portfolio managers — have largely seen their gains erased since January 2020, according to a Bloomberg article.

It’s entirely possible, Dedman says, that many investors who haven’t traded through an environment of rising prices are receiving a “wake-up call” that the market has reached the “end of easy money.”


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“I think for a typical retail investor, this is a more challenging time,” he says.

“Sometimes traders trade more on momentum than they trade on the actual fundamentals of the underlying company. Ultimately, the fundamentals need to catch up with evaluation.”

While Dedman says there are some stocks that tend to perform better when rates are high — commodities and consumer staples, for example — it’s rarely a good idea to make big changes to your portfolio during low points in the market.

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Investing remains a long-term game, and markets are cyclical. If your losses are a bit severe for your risk tolerance and need to be reassessed, Deadman recommends speaking to an advisor after you get past current lows to get a combination that works best for your financial situation.

“One of the most dangerous phrases in investing is that ‘this time is different.’ … We’ve been here before. We’ve been through these times before.

“When you’re in the midst of this atmosphere it’s kind of the worst time to make changes.”

— With files from Reuters, Associated Press


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2022-05-10 20:21:34

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