Rudi's View | 4:59 PM
Underneath the Middle East quagmire, the world is changing and ASX technology stocks are at the centre of tomorrow's new landscape.
In this week's edition:
- Trump's Circus
- Technology's Brave New World
- Thoma Bravo & ASX Technology
- RBC Global's Top 30 Global Ideas
By Rudi Filapek-Vandyck, Editor
Trump's Circus
One commentator put it as follows this week: We're all on Trump's rollercoaster and we can't get off.
And so on Tuesday equities enjoyed a positive session, followed by a really strong session on Wednesday, but by Thursday all those gains had to be priced-out yet again.
What this week's price action does signal is share markets are due for a big rally whenever a believable, permanent solution is reached between fighting opponents in the Middle East, but also: there will be no sustainable buying unless such an outcome is actually achieved.
Further complicating matters is the longer the current dead-lock continues, the worse the eventual outcome might be.
Right now, some forecasters are suggesting investors should start preparing for stagflation as energy supplies will remain disrupted for much longer, even if the war ends next week, but I think that's not the real dilemma for investors to contemplate.
I think, once the situation clears in the Middle East (if/when), investors can most likely look through most of the shorter-term impacts, as long as the outlook remains biased towards improvement and relief.
That will not be the case if the outlook points to much lower, negative growth, as in the 1970s style of stagflation. That is currently not on the cards, but if the war continues for much longer, such an outcome will eventually pop up as the market's biggest fear.
That's when things will get very, very ugly. And quickly too.
Meanwhile, the world is changing and soon companies will start updating on affects and consequences from the war's fall-out. Analysts will start downgrading their forecasts.
The two questions that right now remain unanswered are:
- How much deterioration should we prepare for?
- How much is already reflected in today's share prices?
The honest response currently is: we do not know. What we do know is the longer the war continues, and energy supplies remain significantly disrupted, the heavier the impact will be, and probably also: the longer it may last.
By now, I assume you are all aware with the proverb: “When a clown moves into a palace, he doesn’t become a king. The palace becomes a circus.”
The modern day version of it has now become: “When clowns move into the White House, the world becomes a circus.”
It's a closed-tent event. We will have to watch the spectacle until the end, whether we'd prefer otherwise doesn't matter.
Technology's Brave New World
While contemplating possible future ramifications of the current sh*tshow around the Strait of Hormuz, it is but logical our minds wander off to vulnerable retailers and business models linked to household budgets and spending constraints, but one extra factor that hasn't disappeared is AI is still changing tomorrow's world.
Well before the first bombs fell upon Iranian soil, investors, traders, hedge funds and shorters combined had turned the world of software and technology into a true graveyard of yesterday's valuation premia and impregnable moats, alongside broken dreams and promises.
The global de-rating that started in the second half of last year has been one of the most savage ever witnessed outside of financial system calamity or economic recession.
All because of the possibility that rapid development of the AI technology can disrupt, if not annihilate, some businesses.
Which ones? We do not know. So we thrashed all of them.
On Thursday morning, sector analysts at Morgan Stanley took a stab at re-incorporating the new reality for yesterday's star performing growth stocks on the ASX by slashing valuations by between -6% and -42%.
The average updated price target now sits -20% below consensus.
Underneath these changes sit lower growth projections for as far as the eye can see, on lower margins, with the need to invest more, and with reduced multiples to value future potential.
It's not all bad news.
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