“It’s a very interesting thing now what’s happening in the markets. The hyper growth high flyers, the technology stocks with high PE ratios, or high market cap to revenue, the ones that investors thought they were priced to perfect or at a bubble, they’re beating estimates,” said Ados.
She went on to explain that the tech stocks are coming from a high base from last year with greater social media and tech engagement because of the pandemic.
Twitter’s earnings reported a 75% growth in revenue; Snap Inc, social media and camera company and creator of Snapchat, reported a 120% revenue gain along with 23% user growth, Ados explained. “They added 50 million users in the last year. These are extraordinary numbers.”
This is growth that Ados anticipates will continue, with cyclicals having run the show in the last quarter.
“Tech will be able to reposition themselves for outperformance,” Ados said.
When discussing the prices that tech is currently at, Ados believes that there are pockets of tech that are “priced to perfection” while there are other areas that are still continuing to beat estimates.
“What we expect to see in the next quarter is what we already saw so far in the last few weeks; value and growth alternating for lead market performance,” Ados explained. This could result in the quarter ending flat, but could also lead to a “stockpicker’s market” and align for a strong end of the year with respect to the technology sector’s performance.
Ados anticipates the cyclicals carrying money over into tech in the bull market that currently exists, with a strong finish for the year because of it.
Chinese Regulations Affect Overseas Investing
Shifting to discuss the Chinese markets and tech companies that are currently experiencing losses under intense regulatory crackdowns by Chinese agencies, Ados explained that “there are 225 Chinese ADRs under pressure and we see this continuing.”
The current volatility being seen has forced valuations down due to higher levels of risk and discounted rates.
“Once investors get a better handle on the sobering risk associated with China as a nation, and once the valuations justify the prices and the risk, then we might see some flows back in,” Ados said, but for now she sees it continuing to be an area of high risk.
With the outflows from Chinese ADRs and the crypto markets, money is being redirected into different speculative investment areas such as hyper-growth tech, emerging markets, SPACs, and small caps.
Cryptocurrency and Bitcoin Investing
With crypto investing on the rise, Ados discussed the profile of the average crypto investor: “They tend to be millennials,” she said and went on to explain that most were first-time investors. “It’s the Robinhood crowd,” she said, discussing the trading platform app and how a fifth of investments made on it are into some form of crypto.
Ados cites growing ESG and regulatory concerns as two of the primacy motivators for why investors are allocating their money elsewhere.
While some of the first-time investors might never come back to the markets, some are pivoting to investing in other areas; “they are becoming much more strategic and they’re moving into other areas in a better way, which can provide a better risk return for them.”
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