The transformation of Asian indices by technology is exciting but
also poses a risk. There has been an increase in average valuations, both
due to the strong price performance of these key technology stocks, but
also due to the fact that their larger weightings have crowded out lower-
valuation, old-economy companies.
While this likely better represents the
dynamism of Asia’s broader economy, it also leaves investors with less of
a valuation cushion if one or two of these frms stumble.
The lack of coherence in the acronym grouping poses yet another
risk. Having treated these firms as successful momentum plays, in a
downturn investors may not know why they should own them.
Take a look at the US FAAMNG grouping: Facebook, Amazon, Apple, Microsoft,
Netfix and Google. That group has a combined market cap of $3.4tn (or 12
per cent of the value of the US equity market). But what do they have in
common? Once upon a time, the answer might have been “the internet.”
But this is too simplistic today. In reality, these firms are a mix of software,
hardware, content and internet-enabled retailing and logistics. In terms of
the value they deliver to their customers, they are all quite diferent.