June 26 2020

Technology Unchained

Technology has come to mean everything that is a bit edgy and new. Our washing machine was once at the tip of progress, but now it’s the turn of quantum computing, cloud databases, blockchain and the API of everything. What’s behind the hype?

The current pandemic has laid bare outdated models, forcing all corporates to slam the gas pedal on technology improvements. Stock market prices have somewhat reflected this acceleration. Despite the blow of the lockdown, tech firms are trading higher than pre-covid. Pundits are quick to claim that this is an aberration compared to historic valuations, or is it?

The V-shape recovery for tech stocks is so May20, welcome to the tick-mark-shape recovery. Let’s face it, there are now 3.5bn people online with internet penetration doubling over the past 10 years. Yet, potential is still enormous, with US e-commerce only representing 13% of US physical retail sales. Elsewhere, just look at year-on-year growth of time spent on Chinese e-commerce Apps in May20, +48%, +31%, +86% for Taobao, JD, and Pinduodo (PDD) respectively. With valuations of up of 10x FY21 sales for PDD despite negative earnings, there is a reason to pause and reflect on the sustainability of the 60% growth per annum, but probably not enough to discard the investment theme altogether.

In finance, please raise your hands those who believe that banks will still rule the show over the coming 10 years? Yes, there is not doubt that digital yet-regulated set-up will supplant the low-service-quality high-price banking branch. Why? Cutting the intermediary and offering advice, savings products, investment solutions in a digital format and accessible with one finger swipe is becoming the norm. Your cold ledger is bound to take over your ostrich-leather wallet.

Some projects will remain nice-looking make-overs of the same service, but most will deeply rethink the customer experience, the value proposition, and will unlock new possibilities. Huge money savings are at stake, but most importantly a lot of freed-up time. Just as the washing machine brought about social change and economic development, Prometheus is coming to earth again to bring us light. Embrace it.

360 Advisory – Markets