In today’s Exponential Investor…
- Why China’s tech sector is crashing
- The US next?
- Lina leads the charge
Here’s a weird thing.
The antitrust agenda has been gaining social and political (bipartisan) support in the United States, the UK and Europe for the last few years. People think that Big Tech and social media have got too powerful and influential, and they want to do something about it.
And quite rightly!
I’ve written before about Shoshana Zuboff’s amazing work on surveillance capitalism.
The giants of tech and social media have terrifying power, and offer us a product as addictive as cigarettes.
If the product is free, then you are the product.
That means that Facebook and Google are only free because they sell our activity data to third parties.
In China, we are seeing what a political crackdown can do to the tech stocks active in such sectors.
We in the democratised West cannot go as harshly or quickly in our antitrust campaign against Big Tech – we can’t ban profits, mess up IPOs or kidnap CEOs.
But China is painting a picture of our own future.
The Hang Seng Tech Index, for instance, has fallen nearly 50% from its recent high.
The power of politics to assert itself on stock prices remains undimmed – it would seem.
But a bit like the original outbreak of coronavirus, investors seem to imagine that what’s happening there won’t come over here. Which is odd, given that antitrust has ostensibly been a well-known risk to investors for some years now.
But this is what widespread optimism does to market psychology. People are watching the wildfire spread towards them, and all they’re doing is pointing their cameras and chatting. But the fire is coming towards them now! And because they didn’t turn and run at the first sign of danger, it’s too late…
To me, Big Tech antitrust is a reflection of what is now an accepted societal truth. Big Tech and social media are dangerous. Whether you look at what monopolisation is doing to small businesses, or what Facebook is doing to mental health among younger people… people are keen to see change, and to see massive enterprises broken up.
The politicians are chasing this in response to fairly widespread recognition that some companies have grown too influential and powerful.
So it’s not some political point scoring in China, and it’s unlikely to be a passing fad. It’s a widely popular global phenomenon, and we ought to be prepared to see something similar in other Western countries before too long.
The Khan of Antitrust
The key person to watch in this space is Lina Khan.
She has risen rapidly through the ranks to become the chair of the Federal Trade Commission, the top antitrust regulatory body in the United States. The decision was a bold one by Joe Biden, and made the intentions of the new president very clear.
Khan, aged just 32, has made a name for herself for advocating a return to the old school of antitrust thought.
Her articles on “big candy” (every confectionery in the aisle is now owned by just a few companies) got her started, but it was an essay on the hegemonic power of Amazon which really put her on the map.
Her argument is that the current regime of regulation focuses on price to the consumer as the main relevant point.
But what this allows is for Amazon-style aggressive pricing, and a focus on growth over profit; that, in turn, leads to a host of monopolistic practices which aren’t in the price, but are just as important.
If the troubles we’re seeing in China are to be replicated in the United States, it will likely be Khan who leads the charge.
The Financial Times reported this nice quote, from Robert Kaminski, a managing director at Capital Alpha Partners, a policy research group in Washington: “Now she’s in charge, and she’s to be feared. She’s got the hammer and all she sees are nails.”
Two ways to tradeLooking at the political troubles in China and expecting a similar outcome leads to some obvious conclusions, especially with US Big Tech stocks trading at valuations that appear sky high by almost any standard.
However, forecasting the future, especially politically, has made a fool of many investors. In fact, I am of the belief that too much of this kind of thinking is a mug’s game, so this is a rare case where I feel something is clear enough to merit our attention.
There is another way though, which is completely agnostic. No forecasts are made, and no political analysis is required.
If you want to learn about this kind of investing…
… and about the “Sniper Signal” which distils a wide range of market information into a handful of key indicators…
Then click here to find out more.
All the best,
Co-editor, Exponential Investor