This final blog in our series of potential surprises for 2018 considers the impact on economies and markets if the FAANGs (Facebook, Amazon, Apple, Netflix and Google/Alphabet) were to be finally defanged. Imagine coming to the end of 2018 and finding today’s technology giants were no longer the most powerful and biggest companies in the world. What might the investment prospects look like then?
What we know about the technology giants
We all know that the wonderful utility that social network, search engine and internet media companies offer us comes at a cost. The new economy giants evade taxation, facilitate fake news, corrupt the democratic process, invade the privacy of citizens and destroy countless thousands of jobs through unfair competition. Their power appears to exceed that of elected politicians.
So imagine a world where the FAANGs start to fall from grace
In this nasty surprise, Google and Amazon are investigated by the US Department of Justice anti-trust authorities with a view to breaking them up. Facebook is caught up in investigations on its role in recent elections. Advertisers leave the social networks, eroding their earnings. Meanwhile, on the advice of Bill Gates and others, Congress implements legislation that taxes industrial robots as factors of production, just as human wages were taxed before those human jobs were supplanted by machines.
Governments find ways to tax internet retailing, damaging the ability of companies like Amazon to disrupt areas of commerce. The use of Artificial Intelligence is strictly regulated. In China, the Communist Party takes effective control of the internet giants there, like Baidu, Tencent and Alibaba. These companies become instruments of state control, just as in George Orwell’s 1984.
How would this affect the economy and the markets?
The result is a collapse in the share prices of the FAANGs. This leads to a severe market correction, exacerbated by sector-thematic ETFs all heading for the exit at the same time. Equity risk is re-priced across all sectors, with the market de-rating dramatically. Bonds do better, acting as a store of value in the technology sector rout. Although this period of volatility throws up many excellent long-term opportunities, the market mood music shifts into a very dark, minor key.
How can I prepare for surprises in 2018?
How technology giants fair in 2018 is just one of the many potential surprises in 2018. The good news is that our experts are continually exploring and analysing the markets to spot what’s happening long before it affects investments. They’ll help you prepare for the unexpected so you don’t have to worry about known, or even unknown unknowns.