over 2 years ago • 3 mins
Data out over the weekend showed that Big Tech’s been buying up startups at a record pace this year, as the sector tries to fill an insatiable appetite for world domination.
What does this mean?
Big Tech’s had a strong year, with digital life booming as everyone and their dog embraced home-working and online shopping during the height of the pandemic. But that demand has left them scrambling to improve their offerings, and they’ve gone about doing it the only way they know how: by buying big. They’ve spent over $264 billion on companies worth under $1 billion since the start of this year – already double the previous record set during the dotcom boom back in 2000.
Why should I care?
The bigger picture: A deal isn’t a deal.
The US government is wary of all this dealmaking, mind you: it suspects Big Tech is buying out smaller rivals to eliminate its future competition – a move that would limit the public’s choices and could, ultimately, force them to pay more. The government doesn’t sign off on a deal when the company does, either: it’s still looking carefully at Facebook’s acquisitions of WhatsApp and Instagram, and those were both completed years ago…
For you personally: Growth is the way to go.
The value of any stock is the value of its future earnings discounted back to today, but those future earnings are worth less when interest rates rise. And since Big Tech is all about the promise of future earnings, rising interest rates are a big worry for the sector’s investors. Right now, though, interest rates are at rock bottom, and they’re likely to stay that way for the foreseeable future. That might be why Goldman Sachs reckons growth stocks – especially Tesla, Uber, and Netflix – are the perfect place to put your cash right now.
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China’s crackdown on its real estate industry had investors worried on Monday, as every sector looks increasingly like a nail under this relentless regulatory hammering.
What does this mean?
China’s government has been putting all sorts of regulations in place to make it easier for homebuyers to get on the property ladder, as well as to reduce the amount of debt in the sector. But that’s put more than a few developers on the back foot – not least real estate giant Evergrande, whose $300 billion-plus in debt makes it the most indebted property company in the world. Evergrande warned just last month that these new rules could drive it to bankruptcy, and, true to form, it’s been struggling to come up with the cash to cover this week’s installment. Investors, uh, aren’t optimistic about its chances: they’ve sent the company’s shares down more than 47% in the last month.
Why should I care?
For markets: It’s one thing after another.
It wasn’t long before investors were getting nervous that China’s clampdown would spill over into Hong Kong, which might be why a key index tracking the region’s property stocks dropped 7% on Monday. And once the dominoes started falling, they didn’t stop: Ping An – China’s biggest insurer with significant exposure to the country’s property market – saw its shares collapse more than 8% on Monday, while the prices of construction metals like copper and aluminum pulled back too.
The bigger picture: China’s Catch-22.
Property-related activities are estimated to make up 29% of the Chinese economy, so a catastrophic default of developers like Evergrande would be no small thing for the country itself. The question, then, is whether China is so adamant about getting debt levels down that it would rather take the hit to its own growth than bail those giants out. We don’t know the answer yet, but we might soon enough…
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