The backlash against Big Tech gathers pace

China's regulators have proposed new anti-monopoly guidelines that could hit tech giants Alibaba and Tencent. Could the US be next to join in?

The Big Tech backlash has come to China, says Jacky Wong in The Wall Street Journal. Regulators recently suspended Ant Group’s $37bn stockmarket flotation at short notice. Now they have proposed new anti-monopoly guidelines that could hit Alibaba and Tencent, the internet giants whose social-media apps and payment and e-commerce platforms dominate daily life in China. 

The news rocked Chinese tech shares, says Megha Bahree on Al Jazeera. Hong Kong’s Hang Seng Technology index retreated by 11% over two days last week. China has previously taken a largely “hands-off” approach towards its domestic tech titans, but Covid-19 has made the issue of market concentration unavoidable. E-commerce accounted for roughly one-quarter of sales in China last year, but that figure is “edging towards 30%” due to the pandemic. 

The draft rules would ban such practices as “selling goods below cost… and exclusive sales agreements”, says Nikki Sun in Nikkei Asia. Regulators are also concerned about the rise of online loans, which are not subject to normal bank regulations. The move “strikes at the heart” of a business model that depends upon walled technology ecosystems and “scale economies”, says a Gavekal Dragonomics note.

The new safe haven? 

US Big Tech has so far received less regulatory pushback, says David Goldman in the Asia Times. The share of the five biggest tech players on the S&P 500 by market capitalisation has doubled over the past decade to 22%. Microsoft, Google and Apple collectively have one-fifth of all the cash held by companies on the index. Some 70% of “all digital advertising revenue…goes to Facebook and Google”. Indeed, so dependable are these revenue streams that the tech giants now “trade the way utilities used to”, closely tracking movements in bond yields.  

The prospect of more regulation has been a “dark cloud lingering over the tech sector”, Daniel Ives of Wedbush told Teresa Rivas in Barron’s. Yet the US election results may deliver a “goldilocks scenario” for tech, with a gridlocked Congress unable to agree on antitrust measures. Biden is also likely to stabilise relations with China, helping firms such as Apple whose supply chains are “caught in the crossfire”.  

In recent years successful investment performance has boiled down to buying and holding “popular technology names” and watching them soar, says Michael Mackenzie in the Financial Times. Yet it is value stocks that have been shining of late. Nevertheless, investors will continue to put a premium on the tech sector’s superior growth prospects and strong cash flow, which give it defensive characteristics, says Jim Paulsen of Leuthold Group. “Tech will underperform, it will not crater.” 

Recommended

Passive investors beware: you may be dangerously overexposed to big tech stocks
Stockmarkets

Passive investors beware: you may be dangerously overexposed to big tech stocks

Most investors in index funds are likely to be dangerously over-invested in US stocks, and particularly in a few huge tech stocks. It’s time to think …
15 Feb 2021
Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
Three ways to avoid a big Deliveroo-style flop
UK stockmarkets

Three ways to avoid a big Deliveroo-style flop

Deliveroo's IPO – the most exciting new stockmarket flotation for a generation – turned out to be a big flop. It needn’t have been, says Matthew Lynn.
11 Apr 2021
Investing in luxury goods: a sector set for years of galloping growth
Share tips

Investing in luxury goods: a sector set for years of galloping growth

Rising Chinese consumption and the advent of e-commerce are two long-term trends powering the premium-goods industry, says Stephen Connolly. That impl…
9 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021