The rotation into cyclical stocks has sapped momentum from tech’s red-hot run but fund managers are divided on whether it’s time to buy.

Tech bubble
Andrew Brown from East 72 blames zero-cost money for dangerous tech valuations reminiscent of 1999-2000. Peter Braig
Despite the rebalance, the S&P/ASX All Technology Sector is down 3 per cent since November 9.
The technology sector was one of the few market bright spots on Thursday. Xero shares rose 2.8 per cent, Afterpay advanced 0.6 per cent and TechnologyOne climbed 5.6 per cent.
But East 72 hedge fund manager Andrew Brown labelled tech valuations “still crazy” and reminiscent of the 1999-2000 tech bubble.
“At one stage last week Afterpay was worth more than Coles. I don’t care where you come from, that’s plain stupid,” Mr Brown said.
According to the veteran fund manager, tech valuations remain dangerously high due to ultra-low rates and stimulus creating zero-cost money.
“I describe zero-cost money as creating permissive outcomes,” Mr Brown said.
“What it does is take away from people’s valuations disciplines. If you do a discounted cashflow using low-cost money it’s going to come out whatever you want. So people just put a finger in the air and judge the business model. That’s what’s gone on in buy now, pay later.”
Mr Brown also warned that crowded trades such as e-commerce businesses including Kogan, which were huge winners in 2020, could face a rough 2021.
“The comparisons for some of these tech and e-commerce companies are going to be really quite tough.
“Things started to really pick up for the online retailers around this time last year, with the Black Fridays and coronavirus. So it’s going to get really tough for them as we get into the first and second quarters [of 2021] as they’re cycling off COVID,” he said.
Signs that value investing may be back as a style after the Pfizer vaccine include a slight steepening in the US yield curve and strength in businesses that can be valued using traditional methods of buying a dollar for 70 cents, according to Mr Brown.
“People have bid up media stocks quite aggressively. Most of those are sum of the parts type things you have to do a bit of homework on. Seven West is a good example. They have a lot of assets on the balance sheet that might be sold.”
Inflation bogeyman
There is some logic to November’s sharemarket rotation, according to Insync Funds Management founder Monik Kotecha, but it may turn out to be a false dawn.
Monik Kotecha says a vaccine doesn’t alter the macro-economic fundamentals at play.  Peter Braig
“If you remember around Trump’s election in 2016 we had a major rally in similar businesses and it wasn’t sustained,” Mr Kotecha said.
“The market became overly negative on some stocks. Obviously they’re going to have some sort of bounce.
“Last time it lasted four, five, six months, but you can’t get away from the secular forces at play: the deflationary forces of technology and the ageing population.
“People forget about this, but it’s really fundamental. Central banks have thrown everything they possibly could at it [inflation] and they still haven’t succeeded.”