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2022 has been a miserable time for Scottish Mortgage Investment Trust’s (LSE: SMT) share price. The technology-focussed fund has dropped 41% since the start of the year as fears over economic growth have mounted.
However, in more recent days, it has risen in value as light bouts of dip-buying have emerged. Could this be the start of a prolonged recovery in Scottish Mortgage’s share price?
Tough times for tech stocks
Scottish Mortgage’s share price slump has come amid a broader fall in US tech stocks. The Nasdaq index plummeted 13.3% in April — the biggest monthly fall since the 2008 financial crisis — and continued to fall in May as risk aversion has reigned supreme.
A series of earnings misses, gloomy forecasts and profit warnings have shaken faith in the tech sector hard. Firms as diverse as exercise equipment maker Peleton, streaming giant Netflix, social media titan Meta and (more recently) Snapchat owner Snap have all sent investors packing with some chilly trading statements.
Tech stocks aren’t alone in posting disappointing results and scary forecasts either. Many sectors and industries have been badly damaged by the broader economic cooldown. But tech stocks have fallen particularly hard owing to their elevated valuations.
Signs of anything other than rampant profits growth often leaves expensive shares in danger of heavy share price reversals.
Trading below NAV
Scottish Mortgage Investment Trust’s Top 10 Holdings
| Company | % Of Fund |
| Moderna | 6.5% |
| ASML | 6.4% |
| Illumina | 6.3% |
| Tesla | 6.2% |
| Tencent | 4.9% |
| Meituan | 3% |
| NVIDIA | 2.7% |
| Amazon | 2.6% |
| Alibaba | 2.6% |
| Kering | 2.4% |
| TOTAL | 43.8% |
It’s no shock then that the falling value of global tech stocks has pulled Scottish Mortgage Investment Trust lower. As the table above shows, the FTSE 100 company is heavily geared towards the technology sector.
However, the share price fall now leaves the company trading lower than its net asset value (NAV). At 795.6p per share, the trust trades at a 7.7% discount to the value of the underlying assets.
This discount explains in part why bargain hunters have been buying back into Scottish Mortgage Investment Trust recently. It certainly looks attractive given some of the holdings it has. And it’s prompted me to give the business a close look.
3 key things to consider
The big question, as always, is whether the FTSE 100 firm can continue to recover. And I have concerns over where Scottish Mortgage’s share price will head next.
The implications of soaring global inflation is the chief reason I’m avoiding the trust today. Rocketing inflation is sapping retail activity and consumer confidence in the US slipped to three-month lows in May.
Soaring prices mean too that central banks like the Federal Reserve could continue to aggressively hike rates. This could choke off retail spending still further and prompt further waves of poor share-price-hitting trading updates from the tech industry.
Finally, resurgent Covid-19 cases in China and the US is another reason why I’m reluctant to invest in Scottish Mortgage. This poses the twin danger of sapping consumer spending still further and worsening supply chain issues for tech stocks.
I could be wrong and the stock could continue its earlier outperformance. But it’s my opinion that the share price could fall further in the current climate. Therefore, I’d much rather buy other UK shares today.
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