Stocktake: Higher tax rates could hurt tech stocks

Tech stocks could be biggest losers in a better enforced corporate tax environment

Higher corporation tax is a medium-term earnings threat. Photograph: Getty Images/iStockphoto

Higher corporation tax is a medium-term earnings threat. Photograph: Getty Images/iStockphoto

 

Rising bond yields are beginning to pressurise valuations, so companies must deliver on earnings for stocks to keep rising. There’s good and bad news on that front, says Barclays.

The good news: the percentage of companies beating earnings estimates (73 per cent in Europe, 79 per cent the United States) is near the highest on record. US fourth-quarter earnings grew 6 per cent, compared to pre-season estimates of a 7 per cent fall. European earnings fell 14 per cent, but that was much better than pre-season estimates of a 30 per cent fall. Importantly, companies are upbeat and earnings momentum looks positive.

Vulnerable

The bad news: higher corporation tax is a medium-term earnings threat. Average corporate tax rates in the Organisation for Economic Co-operation and Development have fallen to 22 per cent in recent decades but this could change, with proposals in the US and UK to increase future tax rates.

Tech stocks look especially vulnerable here. Firstly, a global digital tax represents a risk. Secondly, they have historically “managed” their tax affairs and have very low effective rates; consequently, Barclays cautions, they could be the biggest losers in a higher and better enforced corporate tax environment.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.