Fear of Missing Out

There is no shortage of key buzzwords in the market reflecting favoured investment themes and this is currently largely led by the internet.

Keywords such as e-commerce, electronic payments, fintech, electric vehicles, Bitcoin, etc. dominated the key investment themes. We find ourselves asking, “Can technology stocks keep rising?” or “Have I missed the boat?”

Taking aside short-term factors that appear to have accelerated technology adoption and consequently share prices, (i.e., COVID-19 lockdowns, lack of availability of sports betting, excess liquidity in financial markets and low-interest rates) it’s important to take a step back to acknowledge that technology is ever-changing. Today, the principal difficulty is to jettison old assumptions and accept new ones, particularly between the wealth of digital data available online and the physical world in which it is applied in new markets. The speed in applying technology in businesses is also deemed critically important.  For the working population, the search for new skills in the digital space and engineering sciences will be crucial in lieu of current sectoral trends. 

Most investors will have at least some exposure to technology stocks in their portfolio, whether directly or indirectly. What is important to remember, through all the noise, is that not all technology investments are equal (especially some that are being rushed to IPO). For those experiencing the fear of missing out, interest in technology stocks is likely to remain as new collaborations, disruptors, unicorns, etc. come into the market. In our view, the secular trend of technology adoption and penetration is still in its relative infancy. 

Here are some factors to consider:

• Even in developed markets like the USA and Australia, e-commerce has only reached approximately 20%¹ and 12%² of retail sales respectively. Emerging markets like South East Asia have only reached an estimated 5%³ of retail sales online.

• In most of the emerging world, the percentage of the population using the internet remains low but is growing fast.

• The future of work is flexible & remote, with a refocussed reliance on technological solutions for productivity and (flexible) workplace collaboration.

• Technology giants today have become highly diversified businesses and continue to innovate with large and loyal user bases benefitting from network effects. For example, Apple recently announced the Apple Car and M1 chip and has been focusing on the growth of two divisions: services, which include the App Store, Apple TV+, Apple Music, iCloud, AppleCare, and the wearables division, which include the Apple Watch, AirPod wireless earbuds and Beats headphones.

• The cloud computing divisions of Amazon, Alibaba, Microsoft, Tencent and Google are all growing at 30-60% pa with Amazon Web Services revenues surpassing $40b and nearing $50b on a run rate basis alone.

• The tech giants face some anti-trust and regulatory headwinds including data protection & consumer rights however regulation can also become a moat making it harder for new entrants and ironically analysts believe most could be worth more if broken up.

In our view, the Internet is only just beginning.

Notes: (1) Mastercard SpendingPulse report on holiday retail sales reveals that U.S. retail spending from October 11 through December 24 showed e-commerce accounting for 19.7% of overall retail sales up from approx. 13.4% in 2019 sales grew by 49.0% compared to 2019. (2) The Australian Bureau of Statistic, NAB and Australia Post estimate that online retail sales make up between 10-14% of all retail sales in Australia and grew 30-40% year on year. (3) https://www.bloomberg.com/news/articles/2020-08-06/southeast-asia-to-see-310-million-digital-consumers-by-end-2020

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