Sticky Buns

Tik Tok means different things to different people. It depends on vintage. To some, it’s the rhythmic backdrop to a carpeted hall, to others it’s a digital addiction, a scrolling diet of cat videos, celebrity gossip and desperate brands chasing elusive, youthful eyeballs. It’s also going to be banned in the US. So, this is sticky. It appears the US House of Representatives, all good people wildly trading stocks during any recess, has voted “overwhelmingly” to approve a bill to ban Tik Tok. Or at least stop it being distributed on home soil. The beef is that it’s owned by Bytedance. Bytedance might not be a familiar name to many, but it is a Chinese internet technology company. The beef then is with China. File under ‘national security’. Urged on, one imagines, by square jawed, slightly sweaty, DoD officials,  US lawmakers have got all het up and demanded that Bytedance sell Tik Tok. All good. Or not. The spat speaks of wider tensions, symptomatic of the shifting geopolitical order. The waning of one empire, the rise of another. When investors speak about the moats and dominant positions of US mega-cap, what is often not spoken about is the rise of China as a major technological player. The rise of an industrial power. 50% of all engineers – in the world – are Chinese. And that percentage is only going up. The challenge to US tech is, perhaps, what’s the issue. And more. See the problems Apple is now having in China. Market share gains by Huawei are chomping away at the company’s once dominant position. One imagines Huawei has global ambitions. Tesla too, is feeling the heat from BYD, and when it comes to the scrappy fight for advertising dollars, Alphabet executives must have been whooping like they do at the Superbowl when the House vote came through. No one likes a competitive upstart. For a long-time China was a good thing for the US corporate. It was a place with abundant cheap labour. Capital intensive functions could be outsourced, so too emissions. Nice. Consumers and profit margins expanded. China though has ambitions, and it’s not to be a low-margin economy. Whilst political issues hog the headlines, the rising economic threat is enough to chill the mojo of any C-suite executive. It should chill the mojo too of investors, those same investors who have piled into stocks, riding the liquidity bonanza of wet-lipped policymakers. US mega cap tech – as commentators now shrill – dominates the index. It dominates most ETFs and, indeed, the wider passive complex. The argument made is that buying the index means you can eliminate security-specific risk. By owning everything, the only risk you take on is what the market does. The problem, the potential kipper to the face, is what happens if the biggest tech ‘winners’ of the coming decade, aren’t in any index? Hmm. Sticky buns all round.