“The history of mega caps is that, in the end, their dominance is replaced by younger, more nimble firms. The age-old law of ‘what goes up, will come down’, shall prevail,” said a veteran value investor portfolio manager to Spy this week at one of Hong Kong’s swankier establishments in Central over three glasses of very agreeable Duckhorn Napa Valley Cabernet Sauvignon. “At the time, it always seems like these companies can’t fail. But have you worked for a giant company? Those endless meetings, the mindless politics, the pettiness of the bean counters, the monogrammed carpets, the one hand not knowing what the other does? Timing is hard but it happens. It always does.” His advice: “Sure, ride the mega-cap wave but take some of those juicy profits and buy some stocks further down the table, you won’t regret it.”
Spy supposes it was inevitable. With a K-pop band headlining at Glastonbury, Britain’s largest annual musical festival, later this year, an ETF would surely follow. Korean manager, Global X, a division of Mirae launched its Global X K-pop and Culture ETF on the Hong Kong Stock Exchange in March. Will investors be getting a stake in K-pop bands BTS, Blackpink, Red Velvet or EXO? Well, not exactly. As the blurb says, “The fund’s investments are concentrated in companies in various industries and sectors including entertainment, communication services, internet, gaming, consumer staples, consumer discretionary as well as food.” In the last few weeks, the fund has not done much, as it is barely changed from when it listed – but Spy will grant Global X this – it is a thematic with a difference. Whether it will create as much demand as a top K-pop concert, remains to be seen.
“This is gold, Mr. Bond. All my life, I’ve been in love with its colour, its brilliance, its divine heaviness. I welcome any enterprise that will increase my stock, which is considerable,” thus spoke villain, Auric Goldfinger, in the eponymous 1960s film. Gold bugs, who usually have a touch of fanaticism about them, if not homicidal tendencies, must be purring this week. Gold hit $2300 per ounce, an all-time high. If this tells Spy one thing – the inflation fight is far from over. The gold market, over the medium term, has never been wrong about inflation. With the price of oil surging again on geopolitical worries, some gold in the bottom drawer would seem awfully sensible to Spy.
How do you stimulate demand? Well, you can try what China has just done this week for electric vehicles. Its National Financial Regulatory Administration tweaked its car loan rules to allow local buyers to acquire an electric vehicle (EV) with zero % down payment. Spy could be charitable and suggest this is all some fantastic climate change initiative. Far more likely, however, is that over production and a massive glut of vehicles is at the centre of the policy change of heart. Global EV icon, Tesla, has now produced more vehicles than it sold in seven of the past eight quarters. In the UK, consumers appear to be turning their backs on EVs and buying diesel and petrol models instead. What does all this add up to? It could be nothing more than a blip or perhaps yet another sign that consumers are pushing back at net zero with their wallets.
In a gold rush, providing the picks and shovels is usually a safer bet than prospective miners. Spy was reminded of this truism, when reading the news that Microsoft / OpenAI is going to build a $100bn data centre, known as Stargate, to house its AI learning supercomputer. Even in this world of devalued purchasing power, $100bn for a single facility is massive. Chips firms, technicians, and goodness knows how many other vendors will profit from this AI mega bet, even if Microsoft and OpenAI don’t hit nirvana themselves.
Talking of data centres, Janus Henderson has a good insight piece out this week on the amount of electricity the operations consume. This raised Spy’s eyebrow: “This rapid expansion is boosting electricity demand. In the US, data centres accounted for 4% of electricity usage in 2022. By 2026, that is expected to grow to 6% as the shift toward more power-intensive AI data racks – requiring up to seven times more power than traditional setups – accelerates industry-wide electricity demand growth to 10% annually through 2030.” The real question, as posed by the Janus Henderson team is: can electricity supply keep up with this kind of demand? Inevitably, more supply will come on stream and perhaps renewables will have their day in the sun.
How is tech doing over the last year? Pretty well, thanks. Spy took a quick look at Morningstar’s data on tech funds available in Hing Kong. There is very little difference between the top three performers over the last year. T Rowe Price’s Global Technology Equity Fund is up 46.42%, Pictet’s Digital up 46.71% and J.P. Morgan’s US Technology Fund up 48.59%.
Spy loves ambition. Ambitious, bonkers and idealistic people (and companies) often drive the world forward, even if they fail along the way from time-to-time. It came to light that Amazon is quietly closing its AI-driven retail stores where you simply had to pick up items and walk out the store being charged as you left the building. Apparently, its AI, which claimed to use “computer vision, sensor fusion, and deep learning” to work out what to charge people, was actually augmented by a thousand very real people in India annotating videos to get the charging right. In the end it has not worked, which is a shame because queuing for the till at the weekly grocery shop is the bane of Spy’s life.
Twenty years ago, two exceptional companies floated on the stock market. The first was Google (now Alphabet), which has given its investors a fabulous 6,080% return. The second, was a far simpler business: Dominos Pizza, which happens to have kicked Google’s digital butt. The pizza maker has delivered an 8,200% return. If there is a lesson, opportunity and value are found everywhere; one just needs to look for it, reckons Spy.
Until next week…
