Tech plays uptrend could last much longer than thought

November 26, 2019 17:11
Alibaba's successful secondary Hong Kong listing could inspire fresh interest in the tech sector on major stock markets. Photo: Reuters

The listing of Alibaba (09988.HK) in Hong Kong could ignite a new round of tech sector fervor on the stock markets. In fact, the previous three rounds of stock market boom (up to 2000, 2007 and 2017) were all led by tech stocks, whether in Hong Kong or in New York. There could be a bubble (speculative) component, but the underlying fundamental factors are real. Technologies do bring structural changes.

Some say the fourth industrial revolution is happening. Indeed. While the first two industrial revolutions in the 19th century transformed the goods producing or secondary industry from labor intensive to machine intensive, the recent two revolutions (TMT in the 1990s and AI and big data in 2010s) will do the similar transformation to the service sector.

Currently, tertiary industry forms a large component of advanced economies including the US and Hong Kong, employing a lot of people. If they are replaced by robots, it is not hard to imagine the amount of costs saved and the increase in efficiency.

Unemployment is a public issue, but the tech firms stand to benefit, and a surge in their stock prices won’t be surprising.

From the business tendency survey, which shows how leaders perceive the industry outlook up to the current quarter, we see all industries are in a downtrend. Still, the information and communications sector is much better. This means entrepreneurs in the field agree with the market’s optimistic outlook on the sector.

Meanwhile, the business receipts index of the sector is speaking of something consistent. Receipts are the actual money made. The index was fluctuating around 60 to 70 before the financial tsunami but jumped to around 100 in early 2012 and has been staying at the level until now, reflecting the sector’s positive outlook.

Despite the bright prospect, tech is not a business anyone can enter. Given the high entry barrier, and the fact that lots of cutting-edge new technologies are still far from being accessible to anyone, the tech stock boom may have some more time to fully play out.

As the first two industrial revolutions extended for more than a century from 1760s to 1910s, don’t be surprised if the current revolution extends for a few more decades!

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A business tendency survey shows the information and communications sector faring much better than others in terms of perceived prospects. Source: HK govt

The author is Adjunct Professor in the Department of Economics and Finance, City University of Hong Kong and previously the chief economist of a bank. (, [email protected])