There are market fears over the latest political crisis surrounding US President Donald Trump amid a series of government leaks. But it is merely noise. The US equity market is going to be dominated by top tech giants.
Investors no longer focus on short-term earnings. Instead, they recognize the importance of picking companies that are able to survive in the “new world” in the coming years.
An example is Amazon. The company recently marked its 20th anniversary as a publicly traded company and it’s now a global internet giant.
In the past two decades, numerous competitors have been wiped out, paving the way for Amazon’s phenomenal success.
Investors should be very careful in selecting the “right” companies given that many new technologies are fast emerging. The choice of a leader or laggard could mean the difference between heavy losses and multiple gains.
Some are constantly worried about another tech bubble given the 2000 dot-com bust. But I believe many professional investors are more concerned about the gradual erosion of companies like Sears and J.C. Penney.
The outdated business model of these old-fashioned retailers is poised to fail under the disruption of new technologies.
By contrast, internet giants have established revenue models to reinforce their competitive edge in this age of mobile internet. Simply speaking, they are in a much better position than they were in 2000.
In general, the stock market will become increasingly polarized. Investors would keep shunning certain types of stocks even on dips while chasing hot stocks despite already high valuations on the back of a promising outlook.
The strategy investors should adopt is simple: buy the leading tech plays, even at the current level since the market is not overly crowded yet.
It seems no matter how global politics develops, nothing is going to stop these tech behemoths.
One more thing, don’t waste your ammo on second-tier tech plays. The recent slump in AAC Technologies (02018.HK) has provided a good lesson.
This article appeared in the Hong Kong Economic Journal on May 22.
Translation by Julie Zhu
[Chinese version 中文版]
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