The world is changing fast and to keep up you need local knowledge with global context.
California-based founder of ETF provider Ginsglobal, Anthony Ginsberg, makes some powerful points in this interview on the Tech Wreck and what lies ahead for Wall Street’s fallen angels. Ginsberg, a South African now in Los Angeles, says smart American money is picking up shares in downtrodden tech companies, especially those with high exposure to exponentially growing sectors like the Cloud (think Amazon, Apple, Alphabet) and Cyber Security (think Cloudflare). He shares insights with Alec Hogg of BizNews on the US market’s positive reaction to last week’s inflation surprise; explains why Wall Street is happy about the MidTerm election results; and now that Donald Trump’s bolt is shot, the prospect of a Ron DeSantis-led, business-friendly US government in 2024.
Please see timestamps below
00:42 Tech stocks and the inflation print
02:19 Inflation at 7.7
04:29 Decade lows
06:39 PE ratios and fast growing companies
09:59 Cloud computing
11:50 Cheap share prices of tech companies
13:45 What does equally weighted mean
15:07 Midterms in the US and what it means for markets
17:09 Republicans and business friendly government
19:35 Rebound for tech stocks
The below transcript of the interview with Anthony Ginsberg
Anthony Ginsberg on if it was a surprise to see tech stocks react so positively to the inflation print
Not particularly, actually. We believe the Fed has seen the worst of inflation. Most American observers believe the largest inflation prints, I think, are behind us, and then we’ll be on a downward trajectory over the next couple of months. We previously, as you know, hit over 9%. We are down to 7.7 at the moment. It’s very likely that the strong dollar, in fact, is helping America reduce its inflation rate. Interestingly enough, the strong dollar will also help big tech earnings because many of them are large multinationals that have been hurt by the strong dollar. So, we were more positive than others that over the next six to 12 months, as the inflation prints come down, you will see improvements across growth stocks because they’ve been the ones most slammed by discounting high interest rates. I’m a boring accountant by training and, yes, obviously, if you have high interest rates, you are going to hurt the growth stocks. Our view is things are going to start improving for growth stocks into 2023.
On the almost decade lows
Yeah. If you look at the PE ratios, we’ve got a cloud ETF as one of the tech megatrend ETF that covers all of these subthemes. The megatrend had a PE ratio of around 30/31 earlier in the year, looking back to late December and January. Now it got down to about 19/20. So we’ve seen PE ratios compress significantly. In fact, the premium relative to just a straightforward S&P 500 premium. Typically, growth stocks may have a premium as high as 50% more than the S&P 500. That premium has shrunk dramatically. So, what you pay for the S&P, let’s say 16 times earnings, now you are paying only about 19 times earnings for many of these tech stocks. The whole premium relative to the rest of the market has shrunk. In many cases, yeah, there’s a bargain basement sale. You just saw Mr Buffett, Warren Buffett, buy a part of Taiwan Semiconductor overnight, and spent about five billion there. That’s also a boost for the tech sector. We think the industry has been pummelled disproportionately in some ways, whether it was an Apple type stock or an Amazon or even some of the the mid-caps and smaller large caps that we utilise, we actually have an integrated approach. There is a big difference towards investing here, whether you go the Nasdaq route and you have a domination, almost a smothering effect of seven or eight stocks controlling our entire tech portfolio. If you do a much more broad-based look, we have over 100 holdings and these are essentially equally weighted across all these various sub-themes, whether it’s social media awards, cloud, cyber or robotics.
On whether the markets believe the fast-growing companies are now very close to the ratings of the old stolid ones or if values should have its run for a lot longer than a couple of years
Fair enough. I will just say that we see institutional investors in America getting back into the market. They may be dipping their toes in rather than jumping in full heart but we have seen a turn in terms of sentiment. It’s not going to happen overnight. But if you look at how many of us are old enough, back in 1980, when inflation hit double digits and what happened the subsequent year when the prints started coming down, you had a 25% rebound on the S&P 500. Now, we’re not saying you are going to have the exact same situation, but history does tend to rhyme. And most likely we’ll see a positive 2023 and growth stocks will push it higher. They’ve been beaten down indiscriminately, quite frankly. And again, whether you were on Facebook or Apple, everybody just got slaughtered. We think we’re not going to see previous levels. I think we were in agreement that the tech was overvalued, but at this point, many of those well-placed stocks have been beaten down by 30% to 40% and their earnings have not actually given up the ghost. Their earnings in many cases remain strong. Just to give you a quick sense in terms of big tech, cloud was driving 30% to 40% gains year on year during just the second and third quarters. This is for the likes of Amazon, for Microsoft, which has been good as Uber and also Google’s cloud. So big tech, incidentally, are moving into things like online gaming, into social media. There’s a lot of crossover going on. Yess, we talk about anti-trust issues or anti-monopolistic issues, but big tech is able to move all over. One thing I will say about cloud being embraced by the likes of JP Morgan, a big healthcare, hospital groups, financial services group, that didn’t happen five years ago. Cloud was seen as a bit risky, that you put all your eggs in one cloud provider’s basket today. You can use multiple clouds, or hybrid clouds, we call it here. So, outsourcing has definitely caught on and the big regulated industries are now adopting. That’s where you get this $1 trillion of additional revenue spent coming through in the next three years just for cloud computing on its own.
On the mid-term elections and how that reflects in the markets and if the Republicans are heading in the direction of a business-friendly government
Well, the reading is that Wall Street, in the markets typically, like a split government in Congress. Actually, they prefer at least one or two of the houses of Congress being controlled by the other party. So, it’s a real turn up for the books that Biden has been able to hang on to the Senate, although it’s still very close; it’s going to be sort of 51/49. He doesn’t have a massive mandate there. But the House of Representatives, the lower house, probably will be controlled, by a very small margin, by the Republicans, which will change the emphasis there. I think Wall Street will rejoice that there is going to be a split in control. Typically, we’ve seen markets react much more positively when you don’t have one party dominating all three levels of power here. Yes, Trump is arguably the biggest loser because all the candidates he endorsed – four governors, senators, etc. – almost all of them failed. I think, in a way, markets like the Florida governor, Ron DeSantis, as the new leader or heir apparent for the Republican Party. He seems a lot more business friendly. Florida, out of all the states in the US since COVID-19, is one of the top, top performers and it’s seen as a very business-friendly state. Unlike California, where I am, where taxes continue to rise, and more and more red tape and regulations seem to creep in.
I think Ron DeSantis, the governor of Florida, is being embraced by mainstream Republicans and many independents; he most likely should be the Republican nominee. I think many believe that Trump’s days are behind him. If anything, this election has been a negative for Trump and his chances of regaining basically the Republican nomination against the census, who had this massive landslide. Remember Florida is actually a toss-up state; we call it a purple state between the reds and the blues here but he’s basically made it a red Republican wave there, even lower on the ballot, below him. Many congressional districts went Republican. So, yes, in terms of embracing business friendly, the Republicans are always seen as the more business-friendly party. Wall Street tends to embrace it a bit more. I have to give Biden and the Democrats their due for us in the tech space, things like cybersecurity and electric vehicles. Democrats have been huge spenders in this space. The Pentagon is announcing a $10 billion cloud computing deal. For example, many of the state governments, local governments are embracing cybersecurity. Electric vehicle rules have been changed. Both not just here in California as I mentioned earlier, but also the 2030-, 2035-type limitations on traditional vehicles throughout the US have been passed by Biden. As you know, he’s embraced climate change as well. I think status quo, we have some Republican powers in Congress and you have a Democrat in the White House. That’s typically a positive for the US stock market. So we’re expecting a good 2023 here and a rebound of sorts.
On whether there’s a rebound for tech stocks
Yes, absolutely. And again, I cannot tell you that it’s only going to be in one patch versus another. There are some big tech companies like Meta that have actually made some bad decisions. Of course, Tesla, Elon’s views at the moment are focused on Twitter, but the broad fundamentals of tech are growing strongly. Robotics AI are benefiting from the onshoring away from China. Even social media is benefiting from this online gaming explosion, which is expected, by the way, to be five times the size of Hollywood shortly. So, the fundamentals of cloud and cyber are brought where they’re growing at double digit numbers annually.
- Meet South Africa’s global index-tracking pioneers
- Investing in passive index trackers offshore: getting started, choosing funds
- R500,000 investment challenge: Piet Viljoen vs Magnus Heystek
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.