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ANALYSIS: Are FANG stocks as safe as they seem?

As the world grappled with North Korea’s latest aggression and hurricane Harvey wreaking havoc in Houston, Apple was on the verge of something monumental.

Apple, which had more than $30bn wiped off its share price on 9 June after plummeting to $148.98 per share, began trading at a record high of $162.86 per share.

If its shares rally another 14-15%, the Silicon Valley superstar will become the first firm in history to breach the $1trn market capitalisation mark.

While the share price gains were in part due to the upcoming release of the highly anticipated iPhone 8, Jordan Hiscott, chief trader at ayondo markets argues that Apple’s outperformance was notable, given the market jitters around the North Korea missile launch.

“The potential for conflict has never been closer following the latest of ICBM missile test from the North Korean regime, with the firing of a missile over Japan certainly raising the already-high stakes,” says Hiscott.

“As you would expect, global indices and risk assets in general felt the force of the trepidation related to this, all moving lower in dramatic fashion.”

Fellow FANG stocks – Facebook, Amazon, Netflix and Google – have also been trading higher since news broke about North Korea’s missile test over Northern Japan.

The aforementioned tech giants (and Apple) have bounced back more or less from June’s tech sell-off, which caused the NASDAQ to fall 1.8%, its third largest one-day loss this year.

Although the US tech sector has maintained its strong momentum throughout the year, talks of another sell-off or a pullback in equity markets have given investors pause and left analysts debating whether tech stocks had already reached their summer highs.

Are the tech giants really such a safe bet? And is there still more value to be found in the world’s biggest growth stocks?

Jason Broomer, head of investment at Square Mile, believes that while stocks like Amazon and Google might be better insulated from political risks, the associated valuation risks are evident.

“Defensive and cautious assets are so expensive,” he says. “Any ‘stability’ in this world, you’re getting no stability or return from. At what stage the elastic will snap though, I have no idea.”

Karolina Noculak, investment strategist at Aberdeen Standard Investments, adds that although earnings expectations for growth stocks have outperformed value in recent years, the latter has been starting to catch up.

She states: “The S&P 500 value versus growth expectations have converged. Value sectors have caught up with the growth off the back of the recent acceleration in global growth and a weaker dollar that has helped the export parts of the market.

“A better macro should be a catalyst for value to outperform growth. I think that could reveal the crowding area with less fundamental support that have seen inflows in a world of growth scarcity and low interest rates.”

And as soon as the stars align for value, Noculak believes that investors will realise that the growth market, tech in particular, is looking overly crowded.

Tech tops the list of the most crowded trades in Merrill Lynch’s most recent fund manager survey, she points out, and UBS’s performance-based crowding indicator and data from other sell-side banks paint a similar picture.

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Kristen McGachey

Kristen joined Last Word Media and the world of financial journalism in April 2016, leaving behind a career in a legal publishing firm as a senior researcher turned assistant editor. This native Angelino...

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