Published on 22 Jan. 2019 at 8: 11
Darktrace, one of the stars of American cybersecurity, must counter an attack to which it is not accustomed. It comes not from the depths of the Internet but from the financial markets. The stock plunged 7% after it was revealed that ShadowFall, a short seller, has been speculating that its stock has been falling since October. This investment company is feared because it was founded by Matthew Earl. His duet with Fraser Perring is known for dropping Wirecard to 2020 by revealing a huge fraud.
The latter, founder of Viceroy Research, recently tackled a myth. Fraser Perring speculates on the decline of the Tesla Group, the most technological of car manufacturers. Last Wednesday, he tweeted that there was a “price dislocation” between Tesla shares and those of historic automakers Toyota and Volkswagen. Despite its withdrawal from 17 % this year, the group still intimidates, and only 2.6% of its shares are sold short.
Beyond Meat does not deserve its current share price
End 2022, on the 17 US stocks most targeted by short sellers, 14 were listed on Nasdaq, the US technology stock market. Even Beyond Meat, the star of “tech food” with its plant-based meat substitutes, is no longer “a growth stock” and does not deserve its current stock price, asserted James Chanos, another famous short seller. Suffice to say that after more than a decade of purgatory, traditional values hope to take their revenge on the locomotives of the Nasdaq.
The tech sector is no longer untouchable. This year, it will even be a prime target for hedge funds and traders betting on falling stocks. The current correction of the big American technology stocks could indeed put an end to the long bubble of the Nasdaq. Hedge funds have already started to reduce the share of software and semiconductor companies in their portfolios.
Traditional asset managers are also worried. Questioned each month by Bank of America, they declared in December that they had sharply reduced their investments in the sector to a level not seen since the crisis of 2008. Since the end 2016, the managers pointed to the bubble in tech stocks as the main risk 20 month out of 22, that is 80 % time.
After pulling the whole market up, the GAFAMs and other Nasdaq star stocks could well become the weak link on Wall Street. In 2022, hedge funds that invest on equities had gained only 4% on technology stocks, 4 times less than the average return of the last 3 years in this sector.
Refuge in the unlisted
Tiger Global, the fund of Chase Coleman, lost 7.4% in 2022, his first loss since 2016. The spiritual heir of Julian Robertson did not make the mistake of his godfather, whose fund had closed in 2000 for having bet too early on the bursting of the Internet bubble. Twenty years later, Chase Coleman takes the risk of selling too late. Faced with very high stock market valuations and the risk of a correction, his fund prefers to look for bargains outside of Wall Street and in unlisted companies of tech. The investment capital represents 60 billion dollars, i.e. almost two-thirds of its assets (113 billion).
The most famous acronym in tech
The acronym “FANG” (Facebook, Amazon, Netflix, Google) was coined in February 2012 by journalist Jim Cramer on his “Mad Money” show on CNBC. In 2016, the group Apple enters and the expression becomes “FAANG”. This acronym was rather detrimental to performance. After 2013 , the average monthly return of a FANG portfolio, then FAANG, was halved compared to the previous period (2002 at 2013), according to a study (1). The performances remain very strong but the worldwide notoriety brought by the acronym has sparked a resurgence of speculative flows and risks on this handful of securities, plagued by excess valuations. The statistical link and correlation between the five FAANGs has increased as some investors buy or sell their securities indiscriminately and they are perceived as a homogeneous sub-sector of the market.
(1) “FAANG stocks”, Roger Loh
US technology stocks recorded a performance of 1998 % since 2000