London – Technology stocks will continue to dominate the US stock market for at least the next decade despite regulatory concerns and the increasing threat from Chinese rivals, according to Kames Capital’s Carolyn Bell.
Bell, a US and global equities investment manager, believes tech firms’ share of the S&P 500 will continue to rise as demand for their products and services continues to grow, and as they integrate themselves further in peoples’ day-to-day lives.
While there are concerns world governments will apply tough regulation on tech firms, there is currently a buzz about the sector with big names, such as ride-hailing app Uber, workplace messaging provider Slack and home swapping service Airbnb, all preparing to list their shares in the US
Bell says: “Tech will remain, longer-term, the brightest part of the US stock market and a main driver of US productivity growth. We simply don’t see that changing, especially as the appetite for tech remains so strong among consumers.
“We’d argue the US still has by far the most attractive incubation environment for tech companies in the world. There are few barriers to entry in setting up a tech company in the US and there is a well-trodden route from angel investor to IPO.
“On top of that, the proportion of American students studying science, technology, engineering and mathematics is growing, meaning there is a steady supply of labour.”
In 2017, China laid out plans to become a world-leader in artificial intelligence (AI), building its domestic industry to more than $150bn by 2030.
China is already an AI leader in some areas, such as facial recognition. For example, Ant Financial, an affiliate company of ecommerce giant Alibaba, uses facial recognition for payments at Alibaba-owned retail stores.
Bell adds: “There is certainly investor concern from a US standpoint about China’s decided push into artificial intelligence and the effect this may have on America’s relative standing as a technology wheelhouse.
“We are experiencing this competitive battle in real time. The Chinese plan is bold and far-sighted, involving investment in – and favourable regulation of – Chinese start-ups in a wide variety of industries.
“Though Chinese capital markets have developed very rapidly, and in some areas of finance (such as digital payments), China leads, the US retains the advantage of relatively much freer capital markets. This lowers the barriers to business formation and enlarges the potential reward for entrepreneurial talent. The exit strategy is just much easier in the US as it’s without a need for government backing. We don’t think the capital market issues are simple for the Chinese to overcome given the Communist Party’s desire to manage the economy.”