Will the FANGs lose their bite? Top PMs on a potential tech slump

2/20/2018, Citywire

After a stellar 2017 for Big Tech, fears are rising that a slump in the FANG stocks – Facebook, Amazon, Netflix and Google – could cause a market correction in 2018. How will growing regulatory pressures and tax reforms impact the FANGs this year? Citywire asked fund managers whether tech is up for a reboot.

View from US equity expert

Matthew Benkendorf
Matthew Benkendorf – Vontobel Asset Management

We are always concerned about the possibility of a general sell-off in the markets, rather than an isolated event in one sector. Corrections are difficult to predict and could be caused by an unforeseen destabilizing political event, weak economic data or a surprise in the interest rate  environment.

In our view, the technology sector is not facing a disproportionately greater risk of a correction than other areas of the market. Absent a destabilizing event, we think earnings growth should continue to be strong in the tech space and a correction is unlikely. Valuations are not particularly high, especially if tech companies can continue to deliver sustainable earnings growth. We think regulatory pressures will continue to be an overhang, but they don’t present any material risks to the earnings of the FANG companies. In Europe, regulators are more or less fighting yesterday’s battles.

Tech companies have largely evolved beyond the remediation measures that the regulators are considering. Fines have typically been immaterial given the size of the companies. In the US, we think investors will continue to focus on regulation. Tech companies have been aware of the issues they are facing and are working faster than the regulators to remedy them.

For example, Facebook is taking steps to move past the advertising and election interference issues. If there is a sell-off in the technology sector, it will impact a lot of investors because ownership levels in technology have been quite high over the past few years. But in the near term, we don’t foresee any issues that could disrupt the business models or the growth trajectories of tech companies. We are comfortable with our larger tech investments – companies such as Alphabet, Facebook, Visa and Mastercard.

However, the broader risk we are focusing on is the possibility that a correction in the tech market could have a far-reaching effect on the earnings growth and business models of the various industries and sectors that are being disrupted by technology.

Atholl Simpson
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