22 January 2019

Two distinct investment favorites in the US stock market

In the last bubble, the US stock market was split into two halves with entirely different performances. Zero-profit technology companies soared while those paying stable dividends were given the cold shoulder. This distinct preference for growth concept plays, however, is not repeated in the current IT boom, Hong Kong Economic Journal’s investor column observes.

It remains highly debatable if the US economy is truly recovering from the financial crisis. Numerous cyclical stocks remain lackluster, forcing one group of investors to look for returns mainly from new economy stocks valued principally for its sales and user numbers instead of real profit.

Led by Facebook’s US$19 billion buyout of WhatsApp, the recent slew of blockbuster deals seems to have justified the extravagant valuations, attracting bets at an even higher price from those who have so far missed the rally, even though share prices of such internet and technology plays have already tripled or even quadrupled.

Share price performances of such shares no longer have anything to do with the real economy, but depend on how long market participants will continue to buy the growth story.

At the same time, lots of funds are also streaming into low-growth stocks that pay a reasonable dividend, as the post-crisis super low interest rate policy has created a large group of yield-hungry investors.

Anything that offers better yield than bonds is considered high-yield. Real estate investment trusts (REITs), publicly traded master limited partnerships (MLPs) that mainly constitute energy and transportation companies, as well as slower-growth plays like tobacco companies are the favorite targets of these yield seekers.

We’ve got people paying 10 times a company’s sales for its shares. We also have lots of people piling into low-growth but high-yield stocks.

Strangely, high-growth and high-yield have both become the most popular investment themes at the moment.

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Freelance journalist

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