Wall Street’s Big Tech enthusiasm getting stronger amid virus concerns

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Updated 13 July 2020

Wall Street’s Big Tech enthusiasm getting stronger amid virus concerns

  • Behavioral shifts during pandemic lifted the sector into stratosphere, leaving broader stock market far behind

NEW YORK: Tech stocks were going strong even before COVID-19, but behavioral shifts during the pandemic have lifted the sector further into the stratosphere, leaving the broader stock market far behind.

The tech-dominated Nasdaq Composite Index has closed at records in six of the last seven sessions, reflecting investors’ confidence that tech companies benefit from the so-called “stay-at-home” trade even as the market has pummeled airlines, hotels and brick-and-mortar retailers.

“There’s clear winners and losers right now in the market,” said Dan Ives, an analyst at Wedbush Securities, who thinks the biggest tech giants could still gain another 30 percent this year.

“From a winner perspective, the clear spotlight [is on] tech names.”

Technology companies are a “pocket of certainty” in a time of economic weakness, said Quincy Krosby, chief market strategist at Prudential Financial.

The latest surge means that just five companies, the so-called “FAANG” group — Facebook, Apple, Amazon, Netflix and Google — now account for more than 20 percent of the value of the S&P 500.

With spiking coronavirus cases in the US expected to bolster the dynamics behind the recent surge, the industry’s biggest worry is probably politics, analysts said.

The CEOs of Apple, Google, Facebook and Amazon are scheduled to appear on July 27 at a Capitol Hill hearing on antitrust issues, possibly raising concerns that the government’s interest will move beyond political noise.

“July 27th is an important day to see if it’s more of a political grandstanding event or the beginning of something much broader in terms of going after the breakup of these companies,” Ives said.

Krosby agreed that politics remains a wildcard, and if former Vice President Joe Biden wins the battle for the White House in November that could make aggressive action by Washington more likely.

Large tech companies are expected to be a bright spot in the upcoming earnings period, which kicks off this week.

While airlines and cruise companies saw revenue drops of 90 percent or more during parts of the second quarter, tech giants such as Amazon and Netflix are projected to see gains of more than 20 percent, according to Wall Street analysts.

The Nasdaq surge also reflects gains by biotech companies working on vaccines and drugs to treat COVID-19, said David Kotok, co-founder of Cumberland Advisers.

The sector “is a bargain today,” he said. “Health care companies are spending today and the revenue will come tomorrow.”

“I don’t think it’s a bubble,” Kotok added.

While the success of the Nasdaq is the most obvious sign of the tech surge, the broad-based S&P 500 also shows the increased weight of the sector.

As the COVID-19 crisis spread, the index removed motorcycle company Harley-Davidson and department stores Nordstrom and Macy’s, replacing them with less familiar names like Tyler Technologies and Bio-Rad Laboratories.

Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said the pace of change could accelerate as fallout from the coronavirus crisis continues to mount.

“In turbulent times, you get higher turnover,” Silverblatt said. “The index at some point needs to react to the market and to the economy.”

The information technology group currently accounts for around 28 percent of the S&P 500, up from 16 percent in 2010.

Silverblatt declined to comment on speculation that Tesla will soon be added to the S&P 500, but one of the criteria is to post profits over four consecutive quarters, a requirement Tesla could meet when it reports results on July 22.

Shares of the electric car maker have enjoyed a meteoric rise of late, eclipsing even other tech companies, and they now trade at more than four times their level in mid-March.

Though Tesla initially struggled to attain profitability, the surge has made it the world’s biggest car company in terms of market value, well above Toyota, General Motors and other traditional auto giants that sell many times the number of vehicles.

But some think Tesla’s surge has gotten out of hand, including analysts at JPMorgan Chase, who see “lofty valuation coupled with high investor expectations and high execution risk.”


China Pakistan Economic Corridor is a game-changer

Updated 14 August 2020

China Pakistan Economic Corridor is a game-changer

  • Project will strengthen bond between two countries who share history of good strategic relations

The China Pakistan Economic Corridor (CPEC), presently under construction at a cost of $46 billion, aims to improve Pakistani infrastructure and deepen the economic and political ties between China and Pakistan.

CPEC is advantageous to Pakistan but also carries substantial economic and strategic benefits for China.

Its importance for China is evident from the fact that it is part of China’s 13th five-year development plan.

CPEC will boost ties between China and Pakistan, which share a history of congenial strategic relations, over a versatile canvass of mutual interest extending over six decades.

In the past 65 years, both countries have developed strong bilateral trade and economic collaboration.

China is Pakistan’s largest trading partner in imports and exports. And CPEC is going further to enhance the lucrative economic cooperation between the two countries.

If realized, the plan will be China’s biggest splurge on economic development in another country to date.

Consul Syed Hamzah Saleem Gilani

It aims over 15 years to create an economic corridor between Gwadar Port to China’s northwestern region of Xinjiang through the 2,700 km long highway from Kashgar to Gwadar, railway links for freight trains, oil and gas pipelines and an optical fiber link.

The project will create nearly 700,000 new jobs and add up to 2.5 percent to Pakistan’s annual growth rate.

CPEC has undeniable economic and strategic importance for Pakistan and China. It has been called a game-changer for Pakistan because it will link China with markets in Central Asia and South Asia. Presently China is some 13,000 km from the Arabian Gulf with a shipping time of about 45 days.

CPEC will shrink this distance to merely 2,500 km (an 80 percent reduction).

The shipping time will reduce to 10 days (a 78 percent reduction). The bulk of China’s trade is through the narrow sea channel of the Strait of Malacca.

Top security analysts say that in the event of a future war in Asia, the US Navy could block the Strait of Malacca, which would suffocate China’s trade route. CPEC, besides providing an alternate route, will reduce the shipping time from China to Europe.

The largest part of the project would provide electricity to energy-thirsty Pakistan, badly affected by hours of daily scheduled power cuts because of electricity-shortages, based mostly on building new coal-fired power plants.

The plans envisages adding 10,400 megawatts of electricity at a cost of $15.5 billion by 2018. And after 2018 a further 6,600 megawatts, at an additional cost of $18.3 billion, will be added, doubling Pakistan’s current electricity output.

The CPEC brings many benefits for China and Pakistan, but it is also challenged by security-related and political threats.

There are two major sources of threat: Indian involvement, and the separatist rebellion in Baluchistan where the port of Gwadar is situated.

Both dimensions of threat are interconnected because recent arrests of Indian spies by Pakistan reveal that the Indian government is spending a huge amount of money and resources on sabotaging the CPEC project.

Apart from espionage activities, India is also supporting the Baloch rebels. Nevertheless, Pakistan is well-equipped, with adequate security and infrastructure support to effectively deal with such challenges. Operation “Zarb-e-Azb,” which has received international recognition, has flushed out the major chunk of extremists from Pakistan’s soil.

The political side of the project for Pakistan is also not rosy.

It is always difficult to achieve political consensus on an issue. The Kalabagh dam project, for example, which is considered to be extremely important in addressing Pakistan’s water-shortage problems, has been subjected to political controversy and still awaits construction.

Similar formulas are being applied to CPEC. Drums of provincialism are being beaten loudly to make CPEC another Kalabagh dam.

However, this time sanity has prevailed in the political leadership and controversies were nipped in the bud at an early stage. Besides the efforts of political leaders, the contribution of the Army chief should not go unappreciated.

He took a special interest in this project and provided — and ensured for the future — the Pakistan Army’s full support for the mega-economic project.

CPEC has the potential to carry huge economic benefits for the people of Pakistan and the region. According to a recent estimate, CPEC will serve three billion people, nearly half of the global population. Thus a huge economic bloc is about to emerge from this region.

On completion of the CPEC, Pakistan will become a connecting bridge to three engines of growth: China, Central Asia, and South Asia.

It will create many jobs and elevate Pakistan to high growth rates, which will ensure Pakistan’s stability and serve as a deterrent to extremism and violence.

The completion of CPEC is not going to be an easy task because it has attracted international conspiracies, against which it must be protected.

The economic dividends of this project, by connecting all the economies of the region, are going to be so high that once this project is in full-operation even our neighbor India might ultimately join the club for greater economic benefits.

 

The author is Pakistan’s press counselor in Jeddah