The Ransomware Attack Lifted the Cyber Security Stocks, but the Rally Didn’t Last

The massive cyberattack that targeted 300’000 devices in 150 countries around the world one week ago, including important social infrastructures, businesses and private users, raises serious question about growing internet vulnerabilities and computer safety. It is still unclear who is the responsible for the ransomware attack, government agencies around the world are investigating, but one thing is certain: the growing menace of cyber-attacks is escalating, governments and companies are expected to increase spending on IT security after being caught out by the attack and the firms providing IT security services are poised to expand.

The immediate consequence, on the financial markets early last week, has been a sharp rise in the stock market values of these companies.

The simplest way to invest in this business segment is through ETFs that only invest in stocks of companies focused on Cyber Security. The following two are traded at the U.S. market in U.S. dollars and are getting increasingly popular: the PureFunds ISE Cyber Security ETF (HACK) and the First Trust Nasdaq Cybersecurity ETF (CIBR). Their compositions are similar, considering that the universe of anti-hacker stocks is relatively small.

In Europe, it is possible to invest in the Ise Cyber Security Go Ucits (ISIN: IE00BYPLS672).

The sharp climb of these ETFs on May 15th has been followed by an immediate correction just a couple of days after. The sudden market’s sell-off of May 17th did not spare this still interesting sector.

Figure 1: PureFunds ISE Cyber Security ETF (HACK) – Weekly data since July 2015. The quarterly breakout of May 15th was followed by a pull-back, still above the rising trendline 2016-2017.

How the sector reacted to the cyber-attack, is clearly visible in the chart of Figure 1. The Cyber Security ETF – HACK- (traded in the U.S.A.) started the week with a 4% climb but suddenly gave the gains back, hit by the market’s sell-off, that brought the Etf below the level it had started the week. Nevertheless, the bullish signal deriving from the earlier breakout is still in place. In fact, the price is still above the rising trendline originated by last year’s low while the price range 28.50-30$ takes now the aspect of a bullish continuation pattern, sustained by rising lows.

Figure 2: First Trust Nasdaq Cybersecurity ETF (CIBR) – Daily data since September 2016. The breakout of the February-March highs is followed by a severe pullback to the support given by the 50 days moving average.

A similar pattern, for the ETF First Trust Nasdaq Cybersecurity (CIBR), can be seen at Figure 2. Also in this case, the resistance line February-March has been broken on the upside on May 15th, then a sudden correction brought back to the 50 days moving average that is now a support but the most significant is at 20.75-21$, base of the quarterly range between February and May.

Figure 3: Ise Cyber Security Go Ucits Etf (ISIN: IE00BYPLS672) traded in Euro. Weekly data since 2016

Let’s finally have a look at the European traded Ise Cyber Security Go Ucits (ISIN: IE00BYPLS672) at Figure 3.

An additional variable influences the course of this Etf, that of the U.S. Dollar/Euro rate. The greenback is currently weak and for this reason the Ice Cyber Security Etf in euro never exceeded the April highs but rather retested the area of the quarterly lows. In this case, the pattern is much less bullish: the 200 days moving average is a crucial support at 9.40, and it should be watched carefully.

Conclusion: the cybersecurity industry is without doubt an extremely actual investment theme. Nevertheless, the stock prices of these companies are often driven by fear and, by consequence, very volatile, as evidenced by the contradictory moves of last week. But the risk of new menaces is real and the ETFs described in this article could boom again.

Alberto VIVANTI – SAMT Vice President – Graubünden and Liechtenstein Chapter– alberto.vivanti@samt-org.ch

Disclaimer: the above article is for general information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.