August’s trillion-dollar headline was provided by Apple when it became the first company to achieve such a lofty stock market valuation. Amazon got there in September. October was a fallow month for trillion-dollar statistics but here comes November’s offering. The big five “Faang” companies – the other three initials provided by Facebook, Netflix and Google – have collectively shed $1tn in capitalisation from their high points this year. The sector has turned at spectacular speed.
It’s just a demonstration of the thrills and spills of investing in technology, it could be said. There’s something in that idea, of course, since nobody owns these stocks for a dull life. Investors are betting on fabulous rates of earnings growth, projected many years into the future. It only takes a modest shift in the financial weather for valuation to be whacked.
Yet tech stocks do not inhabit an entirely different investment universe. There are at least two reasons why the current tech rout may be signalling broader market worries.
First, investors may be looking at 2019 and deciding that the only way is slower for the global economy. One engine – the US – has been running in overdrive this year as President Trump’s tax cuts have fed into the system. That effect will fade and next year’s story will be the pace at which the US Federal Reserve lifts interest rates. There is a risk of the Fed doing too much, too soon. Meanwhile, the other global driver – China – is spluttering. A growth rate of 6.5% looks good from a western perspective but is the slowest since the 2008 financial crisis. There is nothing that will obviously improve next year’s outlook.
That is partly because of the second factor – the US-China trade war. “If you want a short-term solution, there is no solution,” said Jack Ma, the Alibaba billionaire in September, predicting 20 years of trade hostility. Investors didn’t want to believe it, but they’ve having to reassess.
Hopes of a truce at this month’s G20 are low and falling after US vice-president Mike Pence said at an Asia Pacific conference this week that the US “will not change course until China changes its ways”. Meanwhile, China has launched a high-profile price-fixing investigation into three big computer chip makers, including one US firm. That affair may be unrelated, but it clearly doesn’t make peace over intellectual property more likely. On current form, you’d bet that the next round of US tariff hikes – scheduled for January – will happen.
“All good things eventually come to an end,” said Goldman Sachs’ market analysts on Tuesday, striking a bearish tone in their predictions for 2019. “Cash will represent a competitive asset class to stocks for the first time in many years,” the Wall Street bank said. That is eye-catching, as end-of-year forecasts are supposed to be, but it reflects the suddenly downbeat mood. If Apple can no longer shift more iPhones at higher prices, which is the micro worry about the tech sector, something big may have changed.
Bumpy road ahead for Renault
The reaction of senior Renault executives to the arrest of Carlos Ghosn was fascinating. “On your behalf, we would like to state here our full support for our chairman and CEO,” wrote chief operating officer Thierry Bolloré to staff, before stating that “the governance bodies are playing their full role in defending Groupe Renault’s corporate interest”.
It’s not hard to read between the lines. On the Renault side, they clearly don’t trust the process by which Ghosn has been accused of under-reporting his income at Nissan and committing “numerous” misdeeds. And they clearly suspect this affair will turn into a battle for control of a three-way corporate alliance that also contains Mitsubishi.
One can understand Renault management’s suspicions. Nissan chief executive Hiroto Saikawa didn’t wait to hear if Ghosn denies the fraud charges. Nor did he attempt to explain if Nissan, or its auditors, could have been complicit in any alleged wrongdoing. He just seemed anxious to condemn the “negative” aspects of Ghosn’s regime and ignore the obvious questions about lax governance at Nissan itself.
If Renault’s top brass smell a power grab, you couldn’t blame them. Given the relative recent performance of the two companies, Renault, owner of 43% Nissan, desperately needs the partnership to hold. The FT’s revelation on Tuesday that Ghosn had been planning a merger between Renault and Nissan before his arrest in Tokyo, and that Japanese firm’s board was opposed, will only deepen tensions.
Good luck to the French government, owner of 15% of Renault. This tale looks set to become very messy very quickly.
