The GAFA’s’s market dominance and that of their Chinese equivalents, the BATX, pose a risk to financial markets and the world economy. Let’s take a closer look at these risks.
A cursory glance at the of the top ten companies by market valuation worldwide is enough to illustrate the overwhelming supremacy of tech values in the markets: six of the GAFA and BATX occupy top ten positions. Compare that with the same ranking in 2010; when the value of the tech companies had yet to explode and the podium was dominated by financial institutions, today are relegated to the lower reaches of the top twenty. This despite the fact that 2018 contained mixed results by the GAFA/BATX.
After years of rising share prices, 2018 saw investors’ unbridled interest in tech stocks cool. The peak was reached in early August when Apple became the first company in history to boast a valuation greater than $1 trillion – more than the GDP of a Switzerland. This astounding first, however, may take a while to be topped. Uncertainty has crept in since, as the effects of Donald Trump's tax reform faltered and the US central bank, the Fed, raised its key rates, and doubts about the valuations achieved by some GAFA/BATX, mirroring their profits.
Since its peak of August 2018, Apple's price has shrunk by nearly 40%, from $227 to $142. Sales of iPhones, especially in China, are on the decline, but the damage runs deeper than a mere dip in profits: attacks and criticisms against the GAFA’s business model and strategy are increasing. The question of the use of personal data and the Cambridge Analytica scandal obviously played a big part in Facebook's share price drop. As did the application of the European General Data Protection Regulation (GDPR) and the anti-trust and abuse of dominant position accusations that have weighed and will still weigh on Amazon, Microsoft, Alphabet and Facebook. The BATX, too, haven't been spared. In 2018, the share price of Alibaba fell by 26% and that of Baidu 34%.
The GAFA/BATX stock market problems are expected to continue in 2019 in the context of a global economic slowdown and the continuing trade war between Washington and Beijing. The grip of the GAFA/BATX on the world stock markets has tightened so much that the slightest stumble by one has repercussions for the entire stock exchange. According to data from Lazard Frères Gestion, at the end of August 2018, the combined market capitalization of Alphabet, Amazon, Facebook and Apple reached $3.44 trillion, accounting for 13.5% of the value of all 500 companies making up the S&P 500. If the values of tech had been able to boost Wall Street's performance up to summer 2018, since then they have been one of its main constraints.
In early January 2019, the 9% drop in Apple's share price in the wake of the announcement fewer than expected sales of iPhones, triggered a general downward trend on both sides of the Atlantic. Among the first affected, the semiconductor sector and all vendors of smartphone manufacturers, but also, more surprisingly, major names in the luxury goods sector, including Kering, LVMH and Hermes whose growth, like Apple, largely depends on the health of the Chinese market.
The GAFA/BATX are emblematic: they symbolize the United States' and China's economic and technological power, and are a bellwether for the ability of these countries to generate economic growth. If the tech star fades, the stock markets and the global economy will have to find new drivers.
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