Every day, we are bombarded with news about incredible breakthroughs in the technology sphere. What was once a long way into the future, maybe in a different world, is coming closer and at a faster pace. Self-driving cars, drones with shopping parcels, big data and 3D printing are just a few of the recent innovations to grace our lives. Start-ups that were in their infancy less than a generation ago, now bestride the global economy, battling each other for supremacy. The market value of the ’big 4’ – Google, Amazon, Facebook and Apple – alone totals well over $1 trillion and employs around a quarter of a million people, more than Ford or GM individually, and generating far higher profit per employee.
But it is not just about these headline grabbing firms. As technological advances permeate, we’re seeing a world where companies that are able to obtain an information edge are increasingly moving ahead of their rivals. Sometimes, the speed of change and technological advances not only give these companies an edge but create binary outcomes – creative destruction at warp speed.
For Australian investors, this does raise more than a few issues. In 1992 the big four banks were valued at between 5.0 per cent or 6.0 per cent of GDP. Today, they now trade at a collective valuation of around 25 per cent of GDP. That is a tremendous expression of faith in the value and sustainability of profits in the face of change.
Whilst the fully franked bank dividend is a beloved icon, especially amongst the DIY investor set, so was the Holden. The banks are at the vanguard of the franking frenzy. Barclays recently reported that about 36 per cent of household assets are tied up in our national banking system, a record high. High dividend payers like Woolworths, Wesfarmers and Telstra aren’t far behind in the heart and mind of the SMSF trustee. But, if China’s financial wobbles aren’t enough to give domestically entranced investors pause, they need also to consider the big new shift towards digital wallets and ’P2P‘ (person to person) financial services.
Apple recently signed a deal with the major credit card providers for their new Apple Pay system, potentially cutting the big financial services firms off from their clients. Richard Goyder, CEO of Wesfarmers, has said he doesn’t worry about Woolworths so much anymore as he does Amazon. Global high-tech business, especially those based in the US, are penetrating deep into the heart of formerly impregnable business models around the world and delivering bumper profits to its shareholders with their smart phones, e-commerce platforms and ecosystems. As the Australian dollar stubbornly holds onto levels well above where it should be, this may be a great time for investors to think globally.
Source: Zurich Global Thematic Fund