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'Korean investors’ growing interest in US tech stocks risky'
On local retail investors’ penchant for Tesla shares, AB strategist says US tech stocks could be economically sensitive
By Son Ji-hyoungPublished : July 22, 2020 - 17:32
Persisting economic uncertainties due to the coronavirus outbreak appear to have only made blue chip tech stocks in the United States more expensive, while growing retail investors’ appetite for US stocks on global monetary expansion have left them prone to risks, said a strategist at global asset management firm AllianceBernstein.
“On the issue of COVID-19 risk, we would just very simply say why bet on things that we don’t know?” David Wong, a senior investment strategist at AllianceBernstein, said in a teleconference with Korean reporters on Wednesday.
“We don’t know how the global economy is going to recover exactly from this particular crisis. For that reason, we would recommend not betting on macro, or economically sensitive equities at this particular time.”
In this regard, Nasdaq-listed blue chip tech companies, such as Facebook, Amazon, Apple, Netflix, Google parent Alphabet and Microsoft -- which represent 23 percent of the S&P 500’s market cap and 18 percent of earnings -- are starting to look quite expensive, he added.
This might also include Tesla, the US company dedicated to electric vehicles and alternative energy, on which Korean retail investors placed massive collective bets to support a stock price rally.
According to data from the Korea Securities Depository, Korean investors bought a combined $4 billion of Tesla stock during the January-June period, up 1,271.9 percent from the figure of July-December 2019.
Tesla was the largest single foreign stock for Koreans to bet on, followed by Microsoft ($2.8 billion), Apple ($2.7 billion) and Amazon ($2.4 billion), in the first half of 2020. Korean investors’ purchase of foreign securities totaled $142.4 billion.
“I don’t want to address Tesla individually, but I would say that there are a number of companies that are actually generating significant cash flows that have attractive, very large valuations,” he said.
“We think that such companies are very sensitive to performance. The risks in some of the companies can be quite high. And we would recommend for the best long-term outcomes to find high quality growth in somewhat less expensive parts of the market.”
Tesla’s meteoric rise in share price -- up threefold in six months as of Tuesday -- comes amid the belief-motivated stock purchases of retail investors at home and abroad, coupled with an earnings parade for three consecutive quarters through the first quarter of 2020.
For AllianceBernstein, however, such a stock investing strategy might not be desirable, as tech stocks could be “economically sensitive” in trying times -- meaning their stock price could be subject to volatility in case the company underperforms in terms of earnings.
“When we are trying to invest in period of great uncertainties, buying companies that we expect will continue to persistently generate earnings growth is a very good strategy,” Wong said, adding one such sector could be health care.
Tesla has yet to report its second-quarter results, poised to be released Wednesday after the close of trading, as of press time.
AllianceBernstein was overseeing $600 billion in assets across the globe, while its Korean unit has attracted a combined 1.74 trillion won ($1.46 billion) of investment, as of end-June.
By Son Ji-hyoung (consnow@heraldcorp.com)
“On the issue of COVID-19 risk, we would just very simply say why bet on things that we don’t know?” David Wong, a senior investment strategist at AllianceBernstein, said in a teleconference with Korean reporters on Wednesday.
“We don’t know how the global economy is going to recover exactly from this particular crisis. For that reason, we would recommend not betting on macro, or economically sensitive equities at this particular time.”
In this regard, Nasdaq-listed blue chip tech companies, such as Facebook, Amazon, Apple, Netflix, Google parent Alphabet and Microsoft -- which represent 23 percent of the S&P 500’s market cap and 18 percent of earnings -- are starting to look quite expensive, he added.
This might also include Tesla, the US company dedicated to electric vehicles and alternative energy, on which Korean retail investors placed massive collective bets to support a stock price rally.
According to data from the Korea Securities Depository, Korean investors bought a combined $4 billion of Tesla stock during the January-June period, up 1,271.9 percent from the figure of July-December 2019.
Tesla was the largest single foreign stock for Koreans to bet on, followed by Microsoft ($2.8 billion), Apple ($2.7 billion) and Amazon ($2.4 billion), in the first half of 2020. Korean investors’ purchase of foreign securities totaled $142.4 billion.
“I don’t want to address Tesla individually, but I would say that there are a number of companies that are actually generating significant cash flows that have attractive, very large valuations,” he said.
“We think that such companies are very sensitive to performance. The risks in some of the companies can be quite high. And we would recommend for the best long-term outcomes to find high quality growth in somewhat less expensive parts of the market.”
Tesla’s meteoric rise in share price -- up threefold in six months as of Tuesday -- comes amid the belief-motivated stock purchases of retail investors at home and abroad, coupled with an earnings parade for three consecutive quarters through the first quarter of 2020.
For AllianceBernstein, however, such a stock investing strategy might not be desirable, as tech stocks could be “economically sensitive” in trying times -- meaning their stock price could be subject to volatility in case the company underperforms in terms of earnings.
“When we are trying to invest in period of great uncertainties, buying companies that we expect will continue to persistently generate earnings growth is a very good strategy,” Wong said, adding one such sector could be health care.
Tesla has yet to report its second-quarter results, poised to be released Wednesday after the close of trading, as of press time.
AllianceBernstein was overseeing $600 billion in assets across the globe, while its Korean unit has attracted a combined 1.74 trillion won ($1.46 billion) of investment, as of end-June.
By Son Ji-hyoung (consnow@heraldcorp.com)
