US Big Tech is worth more than the Entire European Stock Market; how can Africa profit from it?
By Yariv Cohen, Angaza Partner
The most common wisdom is the one that comes in retrospect. Experts always know how to explain why one candidate won the election, even though during the campaign it was estimated that she had no chance of beating her opponent. Others analyze how one football team won the tournament, after keeping pointing out its shortcomings during the season; And professional business leaders will explain how a specific company is changing our lives, even though in the beginning, they did not believe it had a real chance of success.
But above all, the stock market has always provided the best ground for retrospective wisdom. Even the world’s most experienced and sophisticated investors are constantly missing out on predictions and estimates, and billions of dollars are gained or lost every day. Only after gaining or losing huge sums of money do researchers and commentators wake up, explainning at length why it was a “smart and brave” or “stupid and impulsive” decision. Either way, in real time, no one knows where the market is headed.
Albeit the case in normal times, today, as Covid-19 continues to spread around the world, the situation is much more complicated. In the first days after the virus erupted and lockdowns began in various countries, the markets reacted, as expected, with sharp declines, which led many experts to issue apocalyptic warnings of an acute and prolonged recession. But just a few days later, the trend reversed, and many indices began to turn bright green, led by the leading US stock indices (NASDAQ, for example, jumped 25 per cent).
As Covid continues its catastrophic path (especially in the US), even the world’s leading experts have no real explanation for the meteoric stock rises. But while they are looking for a possible explanation for the phenomenon, the last few days have seen a sharp decline. The Nasdaq lost 6% in two days, and the S&P 500 recorded its sharpest daily decline in more than 20 years. Experts were again stunned, with no one having a real explanation. Nobel laureate Paul Krugman tweeted: “I heard something happened in the stock market today. Anyone who tells you he knows why it happened proves he has no idea what he’s talking about.”
Big Tech Is King
Most of the attention is focused on the big technology companies, known as “the big tech”, including Apple, Facebook, Amazon, Google and others. Last week, the aggregated value of the big tech companies in the US crossed the aggregate value of all shares traded in Europe combined, for the first time ever. Apple alone, which was the first company ever worth $ 2 trillion, was worth more last week than all the British FTSA 100 shares combined.
To understand how dramatic the trend is, one should examine the tremendous growth rate of the American technology sector over the past years. 13 years ago, the entire European stock market was 4 times bigger than the American technology sector. Last week, the Bank of America announced that the U.S. technology sector is worth $ 9.1 trillion, while all stock exchanges in Europe, plus the stock exchanges in the UK and Switzerland (which are not part of the European Union), are worth $ 8.9 trillion only.
On the one hand, this is a tremendous expression of confidence from investors around the world in the technology sector, especially in light of the global crisis. Investors believe in the ability of the world’s leading technology companies to adapt and change their operations, to continue to produce innovative and groundbreaking solutions, to work remotely and to change in accordance with our ever changing reality. In addition, they also believe in the power of evolving technology in huge strides to provide solutions to essential needs. Therefore, more money is flowing to those companies, and value is steadily growing.
But not everything is perfect in the American technology realm (or in its unofficial name, the realm of Amazon-Google-Facebook-Apple), as many investors are already worried that these are exaggerated and inflated valuations, which will end up causing many investors huge losses in the near future. The reason for this, they claim, is the excessive centralization of the global technology sector, which over the years has been (almost) completely concentrated in US stock exchanges. In the absence of alternatives, many investors who believe in the power of technology companies to get through the crisis are forced to invest in leading US-based stock exchanges and inflate the companies value, until it becomes a bubble. And bubbles, as we all know, tend to explode.
African Technology at the Spotlight
In recent years we have witnessed a certain revival in the technology sectors in additional markets outside the United States. The trend is gaining momentum in Japan and China as well, with huge IPOs from leading technology companies, and more recently, we are also witnessing intriguing IPOs on stock exchanges in India. On the global investment map, the absence of the European continent is noticeable, as the trend seems to have jumped straight to the east, and today European stock exchanges offer only limited investment options in leading technology companies.
But the enormous technological-economic potential lies not only in the eastern part of the globe, but also, and perhaps especially, in its southern part; More specifically, in Africa. If American technology companies win the trust of investors due to the great potential of advanced technology for solving various problems, in Africa, the situation is much more acute.
Technologies that already exist today hold a tremendous potential for impact on a large scale, which could directly affect the lives of hundreds of millions of people. In addition, Wall Street’s inflated valuations prove that investors are looking for new alternatives, far from US borders. Africa faces a tremendous opportunity to realize this potential and become the world’s leading technology investment hub in a few short years.
A reality in which a small number of leading American companies (amazing as they may be) are worth more than all the stocks traded in Europe is unhealthy and unsustainable. To enable more stable and sustainable growth, additional investment hubs are a must.
The potential of the technology sector is enormous, and is already gaining investment attention all over the world. The potential of Africa is no second fiddle; It is the right time for the continent to establish its position as a world leader of the technology sector, to attract the attention of investors, and to utilize the most advanced technologies to improve the lives of the people who need it the most.