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Podcast – tech in the firing line

Sarah Coles and Susannah Streeter discuss the financial implications of the war in Ukraine, along with the outlook for tech investors.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Sarah Coles and Susannah Streeter

Published on 14 March 2022

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

While our main concern in the Russian invasion of Ukraine is the human cost of this violence and destruction, we can’t ignore the implications for global trade and inflation.

In the immediate aftermath of the invasion, UK gas prices rose between 40% and 60% higher, although they then fell back. Further disruption will likely mean prices stay volatile.

The UK gets less than 5% of its gas from Russia, but it’s still exposed to international markets. A reduction in supply will push prices higher. With 85% of our homes being heated with gas central heating, it’s going to mean higher energy bills.

We’re already facing a 54% rise in the price cap in April. But if wholesale prices stay high, it could mean more eye-watering rises when the price cap changes again in October.

Oil prices jumped to over $100 a barrel after the invasion, and although it’s fluctuated since, it’s still incredibly high. This is going to impact the cost of filling up at the forecourt. But it will also feed through into the cost of manufacturing and distributing everything, from furniture to food.

The impact will be widespread – some analysts predict inflation will peak above 8%, and higher rates will be around for longer. This is heaping pressure on our finances, at a time when we’re already facing the biggest cost of living squeeze in a generation.

It’s hardly surprising investors are anxious and the stock market is feeling their nerves.

The shock of the invasion sent sectors across the board falling – with the tech-heavy Nasdaq Composite dropping 2.5% on the day Russian troops crossed the borders. While it recovered shortly after, the stock market has stayed volatile since.

The importance of cyber security

Sophie Lund-Yates, Lead Equity Analyst

As things escalate in Ukraine, the need for companies and organisations to keep an eye on just how cyber secure they are has come into sharp focus.

Immediately after the invasion, there was a surge in suspected Russian sourced cyber-attacks. In the UK, the government has reportedly held talks with the National Grid about possible attempts to disrupt the energy system. But a digital war is also being fought and tech giants have come under increasing pressure about whether they should block content to Russia and stop the spread of disinformation.

Listen to our views on the tech sector

One company at the forefront of cybersecurity is Darktrace, a UK-based artificial intelligence specialist, focused on cyber security. Its attraction in today’s climate of constant cyber threat is easy to understand, and Darktrace’s reach is huge – it works with well over 4,000 organisations across the globe.

While the product is enviable, there are some concerns from an investment perspective. The first is that it’s yet to turn a profit on its annual revenues of £281m. Just because something sounds good doesn’t mean you should buy it at any price. It also means investors should be cautious, risk is elevated as there’s no buffer for if things hit a rough patch.

The other end to consider is huge reputational risk, Mike Lynch, Darktrace's founding investor, has now been ruled against in both a fraud trial and an extradition hearing. This sort of thing tends to control the share price, and that could make things bumpy for a while.

Listen to the Podcast for more of our views on the tech sector

Also featured:

Insight from Richard Skellet, CEO of Allied Worldwide, an IT solutions company that takes in everything from cloud computing to cyber security.
Sophie Lund-Yates, Lead Equity Analyst, gives her views on how the surge in cyber will impact tech giants Meta and Microsoft.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. If unsure, seek advice.

Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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