- Conflict between governments and US internet stocks will continue to grow
- Stronger legislation is inevitable
- Chinese internet stocks could be less risky than western counterparts
- Bias to Chinese stocks in digital consumer allocation
David Jane, manager of Miton’s multi-asset fund range, comments:
“Recent events suggest that the outlook for big US technology names is riskier than previously thought. We’ve said for some time that conflict between governments and the US internet stocks was likely to build and recent events highlight this.
“Disruptive internet companies have been one of our favourite themes, although we’ve always been a little wary of the potential for conflict between the big owners, gatherers of data and governments. In our minds, the potential issues go very deep. In the future, power is going to reside very firmly with the ownership of data, where in the past it was brand and IP, having historically been land.
“Data, combined with artificial intelligence, will enable huge marketing opportunities but also the ability to manipulate in other less benign ways, hence the recent Facebook scandal. Of course, this is a major reason to own companies which gather the data, such as Google, Alibaba and Weibo, but also to be conscious that governments or even the population may at some point recognise and reject how they’re being manipulated by the owners of large databases.
“The revelations around Facebook, involving perceived abuse of individual’s data to manipulate voting intentions, really drive home how powerful large databases can be in the right, or wrong, hands.
“Other recent data points are the backlash against Uber, particularly from a fatality caused by one of its driverless prototypes and the EU’s use of large fines and new legislation, most recently proposing a revenue tax to get around their avoidance of profit based tax.
“Donald Trump is clearly no fan, despite being a huge user and beneficiary of social media, having appointed a chair of the federal communications commission who is rolling back legislation designed to protect net neutrality.
“The backlash may wane or it may build, but we have the view that data is so powerful that in the long run, stronger legislation is inevitable and may go as far as to put ownership of data in the hands of a government or even an individual, at least in the democratic west.
“The picture is very different in China, where the large internet companies willingly co-operate with the government in ways such as taking down posts that are offensive to or critical of the government and disallowing search terms seen as unsupportive.
“Recently, China has been going much further, recognising the power which comes from knowledge, it has been clamping down on the use of VPNs to circumvent the Great Firewall but also, hand in hand with the local internet companies, building a social profiling tool to identify good citizens and bad.
“The level of government data collection in China is not well understood in the west, but ranges from the use of social media right through to the use of face recognition technology in all public spaces. America’s discomfort with Chinese smartphones reflects their potential to be used for the monitoring of their users and sending the information back to China. A totalitarian state is bound to use that potential if it can.
“Most people will feel uncomfortable with the implications of China’s approach to the era of big data, and they certainly have a desire to lead in this area, having recognised its potential very early on. From an investment point of view it makes the Chinese internet stocks potentially less risky and faster growing than their western counterparts, as long as they continue to cooperate. We have had a bias toward the Chinese stocks in our digital consumer basket for some time and continue to monitor developments across the whole field warily.”