ASX 200 Tech Shares|A 7.3% Gain in a Rate-Hike Week?

Part 1: A Rough Week for the ASX

Australian tech shares rose 7.3% last week, the same week the Reserve Bank lifted the cash rate to 4.6%. The ASX 200 finished those five sessions up just 0.2%. High rates are supposed to hit tech first. So why did tech lead the board? Thursday was the first trading day of October.

The ASX 200 fell 2%, its worst single session in six months, as worries over rising rates and bond yields near multi-decade highs weighed on the market. Friday brought a bounce. Market Index's weekend wrap called it the latest relief rally in a loop where, as it put it, nothing has really changed. Bearishness in Market Index's investor survey held at 45%, in the 89th percentile of its readings.

The gains were thin as well. Among companies worth more than A$1 billion, only four hit fresh 52-week highs on Friday. At least ten hit 52-week lows. One of the few at a record was Data#3, a tech services company, which is a first clue to where the week's strength sat.

Part 2: Why Tech Ran

Look at who did the lifting. Codan, which makes metal detectors and defence communications gear, jumped 29% over the week after a trading update. That carried it past WiseTech to become the largest tech company on the ASX. Data#3 and Megaport also posted double-digit weekly gains, one on a profit upgrade and the other on A$1 billion in new AI infrastructure contracts.

What links them, on the reporting, is earnings news. Cheaper money played no part. Codan shows the pattern most clearly. Market Index counts four earnings upgrades or beats this year, and each one sent the shares up by double digits to a fresh record. Its verdict is blunt: the stock didn't rally on hype or on a richer valuation multiple.

The usual rule says high yields hurt companies whose value rests on profits years away. Codan's share price followed profits it was upgrading now. Data#3's upgrade holds a smaller detail. It guided first-half profit before tax more than 20% above what the market expected, on demand for cloud, devices and AI work.

Part of that beat was interest income, about A$1.5 million above forecasts, which TheBull put down to a debt-free balance sheet. Our reading goes a step further. For a company holding cash and no debt, high rates add to income as well as weighing on valuations. It's small next to the profit, but it pushes the opposite way to the usual story. Megaport points the same way.

Bell Potter started coverage with a buy rating and says the capital spending for its new contracts is fully funded. The broker sees earnings before interest, tax, depreciation and amortisation rising roughly ninefold by 2028. In our view, a growth plan that doesn't need new borrowing reads very differently when bond yields sit near multi-decade highs. The split also runs through the defence theme.

Codan and DroneShield both sell to defence buyers. Codan is up 131% this year. By the end of September, DroneShield was down by almost half, and it still reports a loss per share. The backdrop was the same and the years were opposite. The contrast fits the earnings explanation, though no article measures how much each factor counted. Nor did the whole sector rise together.

NextDC, the data centre operator, fell 4% in the same week. So the 7.3% doesn't show that rates have stopped mattering for tech. It shows which companies gave the market a reason to look past them.

Part 3: What Comes Next

That distinction could matter for a long time. The 37 economists polled by The Australian Financial Review don't expect the first rate cut until November next year. If that forecast holds, waiting for cheaper money isn't much of a case for tech shares. Earnings delivery is the lever that's left. The same logic cuts both ways.

TheBull notes that Data#3's valuation multiple expanded sharply on the upgrade, and it warns that any stumble in second-half cloud or AI delivery could send the stock meaningfully lower. Codan's run has moved upgrade by upgrade, so its next result is the next test. That test will show whether the earnings keep coming. It won't show whether high yields have stopped mattering. So why did tech lead in a rate-hike week?

The companies doing the lifting brought earnings news, and their share prices followed it. High rates still weigh on the sector. In this market, what matters for a tech share isn't the sector label. It's whether the next profit number goes up.

Informational only, not investment advice. Figures and quotes come from the linked reports.