THE FALL OF THE CHINESE INTERNET COULD DETABILIZE THE FANG
by Noel Randewich
SAN FRANCISCO (Reuters) – A sharp decline in heavyweights on the Chinese Internet and weak access to half of the "FANG", the acronym for the American giants of the web, has caused some investors to fear this Wall Street engine rally for about ten years is almost up.
The spectacular profits of Facebook, Amazon, Netflix and Alphabet have contributed significantly to the rise of the US equity market in recent years, as well as the broader technology share sector, but this market segment is considered overbought, with valuations that remain high.
Supported by continued growth in the results of its electorate and investor confidence in the Silicon Valley innovation capacity, the S & P 500 Technology Index has grown 16% since the beginning of the year and the strongest performance of Wall Street.
But a recent weakness in Chinese high-tech stocks, which has just been highlighted by Wednesday's announcement of Tencent Holdings 'first quarter decline in nearly 13 years, investors' concerns about Wall Street's dependence on some leading growth stocks .
Tencent shares, China's number one social networking site and online gaming website, lost more than 6% in the last two sessions and nearly a third fell against the record level close to the month of January.
"Tencent is a good step for growth and risk, and today it's all about market dynamics, and if something happens, it's the entire industry that gets into trouble," says Joel Kulina, a dealer at Wedbush securities. .
Another factor of concern for investors: Netflix and Facebook, which together with Amazon and the parent company of Google form the FANG, have fallen sharply since the publication in June of their quarterly results and forecasts.
Netflix has lost 22% since the record in early July, after the announcement that the growth was well below the expectations of the number of new subscribers and that Facebook has lost 19% since July 25, in anticipation of a further slowdown in its number of trades after the scandal of misappropriation of personal data from its subscribers.
NIP THE NOSE
Amazon, on the other hand, has risen 60% since the beginning of the year and ended at a record high on Tuesday, while Alphabet has increased by 17% since 31 December 2017.
"FANG will continue to play a leading role in the next two to three years," said Longbow Asset Management's Jake Dollarhide. "They are expensive, but you have to pinch your nose and buy them."
The broad index S & P 500 skates very close to its January record and has gained 6% since the beginning of the year.
Even after recovering from strong sales in February, it is relatively inexpensive, at 16.5 times the expected results, against 18.6 times in January, according to data from Thomson Reuters. As far as the S & P technology index is concerned, it is trading at 18.7 times the expected results, against a peak of 19.6% for this ratio at the end of January.
The FANG segment, with Apple and Chinese stocks Baidu, Alibaba and Tencent, are the most actively traded stocks on Wall Street this month for the seventh consecutive month, according to a survey by the Bank of America among fund managers. portfolios. And in active markets, the risk of a sudden downward trend in the event of a change in sentiment is high.
So far, Chinese technology stocks have been driven by the US technical rally, but the performance of their equity markets may also reflect the prospects for the Chinese economy and regulations.
Knowing that investors are also worried about the possible impact of the trade war between Beijing and Washington, the Chinese heavyweights Baidu and Alibaba have lost 11% and 7% respectively since the end of June. Securities listed in New York have resumed both colors Thursday and Friday, after net sales at the beginning of the week.
By having suffered losses on Chinese equities, fund managers investing in technology may be tempted to sell their US securities to realize their added value.
"Over time, the depth of the market tends to diminish, smaller groups pull out of the market, and once they start to let go, what Tencent can tell us, broader markets can follow," says Peter Cecchini, strategy manager at Cantor Fitzgerald.
Amazon recently traded 87 times the expected results, the price / earnings ratio was the lowest in more than a year. But many managers focus their attention on the explosive growth of the online trade giant's income. On this scale, Amazon appears expensive, in a ratio of 3.5 times the expected income, a record, according to data from Thomson Reuters.
(With Sruthi Shankar in Bangalore, Juliette Rouillon for French service)