The technology sector has led global equity markets in recent years as the powerful applications of cloud computing, the Internet of Things (IoT) and artificial intelligence (AI) are deployed across an increasingly digital economy. This digital transition has accelerated during the era of Covid-19, as businesses and households have leveraged communications technologies and online commerce to sustain their daily activities.
So far, little has seemed capable of impeding the tech sector’s strong run. Investors have taken notice of large tech companies recently being hauled before Congress in the US, the Trump administration’s rhetoric about Chinese divestiture of US tech assets and still-simmering trade tensions. Will greater regulatory oversight and changes in trade policy be the impediments that finally cool tech’s hot streak?
While these developments merit attention, we believe that on their own, they will not dramatically alter the sector’s trajectory. Tech’s secular drivers remain intact and we expect the sector can harvest a greater share of earnings as their products and services add value across an ever-expanding customer base. Still, investors must be mindful of the regulatory landscape. As with any threat, one must ask what the likelihood is that a business model could be altered and, should that occur, to what degree future earnings growth would be affected?
With the chief executives of several leading tech companies appearing before Congress, one may get the impression that these entities are confronted with similar regulatory challenges. That is not the case. There is a range of behaviours that legislatures likely believe require scrutiny.
Among these is purported anti-competitive behaviour. This is an activity that has invited past regulatory action. Perhaps the highest-profile example was Microsoft’s long battle over bundling products like Internet Explorer into its operating system.
Amazon’s relationship with vendors on its third-party marketplace platform has come into question. Concerns have emerged that third-party vendor data have been leveraged to benefit Amazon’s private label offerings. Given the profitability of this business line, any forced changes would have to be factored into Amazon’s future earnings profile. However, it can be argued that third-party vendors gain tremendous value from their relationship with Amazon due to the latter’s marketing, fulfilment and logistics capabilities.
Similar concerns have emerged over Alphabet, the parent company of Google. Here, too, there are two sides for regulators to consider. As the company’s search business has slowed, it has relied on mobile screens to generate a greater share of earnings. New services meant to achieve this often compete with companies that have historically been advertisers on the search platform. The question regulators are interested in is whether Alphabet has altered its algorithms to benefit its own services. Authorities may also want to review whether the company forced mobile device makers using the Android operating system to load a host of Google apps. Given the regulators’ stance on Microsoft’s bundling practices, the company could find itself fielding a range of questions from multiple jurisdictions.
Perhaps the highest-profile subject of regulatory enquiry has been Facebook and the power it wields by dominating social media. Facebook first came under scrutiny for its stewardship of personal data. Since 2018, however, it seems that the company has improved security, transparency and the ability for users to control their own personal information.
Of greater relevance is Facebook’s role as a content moderator. In the US, under Section 230 of the 1996 Communications Decency Act, internet platforms were classified as distributors of content, not creators, and thus exempted from the liabilities publishers face for disseminated illegal content. This exemption has led many to complain that social media companies do too little to police their platforms for inappropriate content.
As with other sectors, tech appears caught in the lurch away from globalisation
In recent years, politicians in the US and elsewhere have come to suspect that social media platforms can exert tremendous power in influencing user behaviour by allowing or blocking certain content based on their terms of service. Up for debate is whether those terms should remain narrowly defined – largely aligning with the “illicit activity” standard – or be expanded in a manner that compels platforms to act as arbiters of truth. Given the large role social media plays in hosting political discourse, it is easy to see why policy makers would want to revisit the issue of content moderation.
In all of these cases, we believe authorities will have to take a balanced approach. A long-held threshold for greater regulation has been whether consumers have been harmed. That would be hard to argue given the breadth of largely free and convenient value-added services available on these platforms. The sector is also a major source of well-paying jobs, and legislators, especially in the US, may view these companies as ‘national champions’ to be supported.
As with other sectors, tech appears caught in the lurch away from globalisation. Often this is guided by policy initiative such as tariffs. Over the past two decades, manufacturing has flowed towards countries with lower-cost labour. Now, either to evade tariffs, prohibitions or to diversify supply chains, costs are no longer the sole factor in choosing manufacturing bases. While this could impact profitability, the transition will take years to play out.
Of special note is the semiconductor industry. China desperately wants to build out its design and software capabilities to complement its manufacturing prowess. This has proven harder than expected. Now, the US has become more proactive in creating hurdles for Chinese companies to access complex technologies. This has ramifications not only for commercial relationships, but also potential merger and acquisition activity, thus possibly taking sources of future economic gains off the table.
Another geopolitical tussle in which authorities may have their say is Chinese ownership of Western tech companies and Western communications firms being pressured to not use Chinese vendors in building out their 5G networks. At present, countries are having to balance security and economic concerns as well as their relationship with the US.
Each of these instances indicate that the more complex geopolitical and regulatory landscape means that economics will not be the only factors at play as tech companies face future business decisions.
Denny Fish is a portfolio manager at Janus Henderson Investors, a member of The Gulf Bond and Sukuk Association
Tamkeen's offering
- Option 1: 70% in year 1, 50% in year 2, 30% in year 3
- Option 2: 50% across three years
- Option 3: 30% across five years
Du Football Champions
The fourth season of du Football Champions was launched at Gitex on Wednesday alongside the Middle East’s first sports-tech scouting platform.“du Talents”, which enables aspiring footballers to upload their profiles and highlights reels and communicate directly with coaches, is designed to extend the reach of the programme, which has already attracted more than 21,500 players in its first three years.
Left Bank: Art, Passion and Rebirth of Paris 1940-1950
Agnes Poirer, Bloomsbury
The specs
Engine: 4.0-litre V8 twin-turbocharged and three electric motors
Power: Combined output 920hp
Torque: 730Nm at 4,000-7,000rpm
Transmission: 8-speed dual-clutch automatic
Fuel consumption: 11.2L/100km
On sale: Now, deliveries expected later in 2025
Price: expected to start at Dh1,432,000
The biog
Name: Salvador Toriano Jr
Age: 59
From: Laguna, The Philippines
Favourite dish: Seabass or Fish and Chips
Hobbies: When he’s not in the restaurant, he still likes to cook, along with walking and meeting up with friends.
Our legal columnist
Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
Classification of skills
A worker is categorised as skilled by the MOHRE based on nine levels given in the International Standard Classification of Occupations (ISCO) issued by the International Labour Organisation.
A skilled worker would be someone at a professional level (levels 1 – 5) which includes managers, professionals, technicians and associate professionals, clerical support workers, and service and sales workers.
The worker must also have an attested educational certificate higher than secondary or an equivalent certification, and earn a monthly salary of at least Dh4,000.
RedCrow Intelligence Company Profile
Started: 2016
Founders: Hussein Nasser Eddin, Laila Akel, Tayeb Akel
Based: Ramallah, Palestine
Sector: Technology, Security
# of staff: 13
Investment: $745,000
Investors: Palestine’s Ibtikar Fund, Abu Dhabi’s Gothams and angel investors
Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
Red flags
- Promises of high, fixed or 'guaranteed' returns.
- Unregulated structured products or complex investments often used to bypass traditional safeguards.
- Lack of clear information, vague language, no access to audited financials.
- Overseas companies targeting investors in other jurisdictions - this can make legal recovery difficult.
- Hard-selling tactics - creating urgency, offering 'exclusive' deals.
Courtesy: Carol Glynn, founder of Conscious Finance Coaching
The Uefa Awards winners
Uefa Men's Player of the Year: Virgil van Dijk (Liverpool)
Uefa Women's Player of the Year: Lucy Bronze (Lyon)
Best players of the 2018/19 Uefa Champions League
Goalkeeper: Alisson (Liverpool)
Defender: Virgil van Dijk (Liverpool)
Midfielder: Frenkie de Jong (Ajax)
Forward: Lionel Messi (Barcelona)
Uefa President's Award: Eric Cantona
CHINESE GRAND PRIX STARTING GRID
1st row
Sebastian Vettel (Ferrari)
Kimi Raikkonen (Ferrari)
2nd row
Valtteri Bottas (Mercedes-GP)
Lewis Hamilton (Mercedes-GP)
3rd row
Max Verstappen (Red Bull Racing)
Daniel Ricciardo (Red Bull Racing)
4th row
Nico Hulkenberg (Renault)
Sergio Perez (Force India)
5th row
Carlos Sainz Jr (Renault)
Romain Grosjean (Haas)
6th row
Kevin Magnussen (Haas)
Esteban Ocon (Force India)
7th row
Fernando Alonso (McLaren)
Stoffel Vandoorne (McLaren)
8th row
Brendon Hartley (Toro Rosso)
Sergey Sirotkin (Williams)
9th row
Pierre Gasly (Toro Rosso)
Lance Stroll (Williams)
10th row
Charles Leclerc (Sauber)
arcus Ericsson (Sauber)
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UAE currency: the story behind the money in your pockets
ENGLAND SQUAD
Eoin Morgan (captain), Moeen Ali, Jonny Bairstow, Sam Billings, Jos Buttler, Tom Curran, Alex Hales, Liam Plunkett, Adil Rashid, Joe Root, Jason Roy, Ben Stokes, David Willey, Chris Woakes, Mark Wood
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The specs
AT4 Ultimate, as tested
Engine: 6.2-litre V8
Power: 420hp
Torque: 623Nm
Transmission: 10-speed automatic
Price: From Dh330,800 (Elevation: Dh236,400; AT4: Dh286,800; Denali: Dh345,800)
On sale: Now
