Could FAANG stocks feel the bite of government regulation?
In the blink of an eye, an elite group of tech businesses has come to dominate the markets, and influence our lives. These are the FAANG stocks – Facebook, Amazon, Apple, Netflix and Google. But with US and European governments seeking to regulate these businesses, there’s a chance their dominance could soon be challenged.
Since the beginning of 2018, Amazon, Apple and Microsoftalone have accounted for at least 35 per cent of the S&P 500’s total return.
It should be seen as extraordinary rather than normal that Amazon’s market capitalisation increased from US$600 billion to US$ 1 trillion in less than six months and that the combined market capitalisation of Facebook, Apple, Amazon, Microsoft, and Google is now more than $4 trillion.
There doesn’t appear to be any reason to expect their leadership to change imminently but investors should keep an eye on the emerging narrative that suggests a backlash to their sheer size and influence.
If the leadership of these companies were to dissolve one could easily expect investors in ETFs to lose faith in passive strategies.
In recent weeks, regulatory momentum is accelerating. And while we don’t expect political will or threats to turn into action any time soon, it is worth keeping an eye on the increasing volume and particularly any signs that debate is transitioning to action.
Here is a selection of recent developments that have emanated from Europe and the US in recent weeks. We have also included relevant links.
- President Trump attacked Google for liberal bias, and claimed Google, Facebook, and Amazon represent “a very antitrust situation”. Read more.
- Attorney General Jeff Sessions convened a meeting of Republican state attorneys general to discuss whether tech giants “may be hurting competition and intentionally stifling the free exchange of ideas on their platforms.” Read more.
- Facebook, Twitter, and Google were called to testify in front of the House and Senate about election interference, political bias, etc. Google declined to attend. Read more.
- The Federal Trade Commission (FTC) has begun a series of hearings on Digital Age antitrust, the first such hearings since the 1990s. Read more.
- The FTC hired Lina Kahn as an adviser. Lina Kahn authored a ground-breaking antitrust argument against Amazon. “Few of Amazon’s customers, it is safe to say, spend much time thinking they need to be protected from it.” “But then, until recently, no one worried about Facebook, Google or Twitter either. Now politicians, the media, academics and regulators are kicking around ideas that would, metaphorically or literally, cut them down to size. Members of Congress grilled social media executives on Wednesday in yet another round of hearings on Capitol Hill. Not since the Department of Justice took on Microsoft in the mid-1990s has Big Tech been scrutinized like this.” Read more.
- Republican Senator Orrin Hatch asked the FTC to reopen a 2013 antitrust case against Google. Read more.
- Democratic Senator Mark Warner released a six-point policy proposal on regulating the tech industry. Read more.
- Democratic Senator Bernie Sanders proposed the “BEZOS Act”, which would tax corporations one dollar for every dollar low-wage workers receive in government health-care benefits or food stamps. Read more.
- The E.U. Parliament voted 438 to 226 to back a draft proposal of copyright reforms that will impose unprecedented liability on information platforms. Read more.
- France is pushing to have “Right to be Forgotten” laws applied globally, which Google is now fighting in court. Read more.
- E.U. is considering investigating Google’s location- tracking practices on data privacy grounds. Read more.
The Montgomery Global Funds own shares in Facebook, Google and Apple. This article was prepared 03 October 2018 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade any of these stocks, you should seek financial advice.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
