What the top CEOs predict next for the markets

A screen displays stock market information at the Nasdaq MarketSite in New York, on Friday, January 21, 2022.

Michael Nagle | Bloomberg | beautiful pictures

Top executives and investors took on an upbeat tone about the recent global tech stock sell-off, telling CNBC it was unlikely to metastasize into a broad market meltdown. bigger.

Heavy technology Nasdaq 100 Monday’s index closed more than 26% down from the start of the year and earlier this month – after Federal Reserve raises interest rates – the world’s largest technology companies down more than 1 trillion dollars in value in just three trading sessions.

Tech and growth stocks have been hit hard by the prospect of higher interest rates, as the Fed and other major central banks around the world seek to curb soaring inflation by tightening monetary policy. .

The abrupt drop in high-growth tech stocks – generally considered overvalued at market peaks in late 2021 – has prompted some commentators to fear a crash. similar technology to the “dotcom bubble” explosion of 1999/2000.

“Obviously there is a question of what the exact market value of some of these models should be, but the underlying business models are the real business models – not just now but for the future. future, in terms of service delivery, advice and what you have,” UBS CEO Ralph Hamers told CNBC at the World Economic Forum in Davos, Switzerland on Monday.

“It’s a trend that’s supported by demographics and driven by changing customer behavior. So whether it’s consumer services or financial services or whatever, I think tech business models, digital models, are still relevant for the future because they’re real business models.”

While some analysts have suggested that sentiment for the tech sector is at its worst since the dotcom bubbleAs rising rates force companies to turn profits faster, they also emphasize that long-term opportunities still exist for investors.

“It’s not like 20 years ago in [the dotcom bubble]. We’ve got some models that are just paper models and not real,” Hamers added. Over the past 20 years, we have been able to demonstrate that there are real changes happening in the retail businesses, in the financial businesses, etc., and that trend is not going to stop because of what we do. we see the present. “

His comments echo those of Credit Suisse President Axel Lehmann on Monday, who told CNBC that investors should keep a long-term view despite the temporary “shake” in tech stocks, as many companies in the sector remain “solidly solid.” and stable”.

“Valuations have essentially gone down in all the stock markets, but profits are still there for companies, so we see a little bit of uncertainty going on,” Lehmann said. Lehmann said, noting that despite the similarities to the dotcom bubble, the underlying trends are now more supportive.

“Many companies will probably disappear, but we shouldn’t think that the underlying trends will [not] remains, that technology and digitization will be crucial, new business models – these are important topics that as business leaders we all need to be extremely mindful of. heart. ”

A ‘significantly orderly’ sell-off

The US Federal Reserve says it won’t hesitate to continue raising interest rates until inflation fell to a healthy level, and its hawkish pivot in the face of strong global upside, in part fueled the exodus away from tech stocks.

However, billionaire investor and private equity firm co-founder Carlyle Group David Rubenstein said on Monday that the market was “overreacting” despite the Fed’s efforts to manage expectations.

“In the crash of 1999, 2000, 2001, you had internet companies with no revenue, obviously no income,” said Rubenstein during a panel of WEF chaired by CNBC.

“Now, you’ve got a company like Netflix has 250 million subscribers. It may not be worth what it was in the market a few months ago, but in my opinion it is certainly worth more than what it is currently trading. “

Rubenstein added that when markets are “overreacting” – as they have been – there is an opportunity for investors to step in and “buy bottom”.

Netflix stock is down nearly 69% year-to-date, while other tech giants Amazon down more than 35%.

“Many of the companies that have gone down in value recently are still great companies and maybe the value has been overreacted by the market. I think there’s been some big buys there, I don’t think that’s the case. our case. was in 1999/2000.”

Despite the sharp drop so far this year, Citigroup CEO Jane Fraser noted during Monday’s panel session in Davos that the sell-off in the US is, from the Wall Street bank’s view, is “orderly substantial” among investors.

“They didn’t rush to the door the way they did with the world financial crisis when that crash happened and where we were in 2020. We’ve seen that,” said Fraser. a fairly systematic takedown and a change in asset allocation.”

She stressed that fixed income releases across both businesses and sovereign states remain “quite constructive” and that market indicators suggest the recent downturn is more likely to be the case. a “necessary correction” rather than a wholesale crash.

“There hasn’t been too much stress – we’ve seen some items, we’ve seen a bit of high yield – but this is not the disaster it could have been,” she concludes.

High growth, high disappointment

According to Maurice Levy, chairman of the board of directors of the French advertising giant, part of the reason why valuations have fallen so quickly and slowly this year is due to the rate of profit growth in the tech sector in recent years. . Publicis Groupe. He said companies have set the highest level for next earnings season.

“It’s an area that’s growing 30% to 50% and when they’re only growing 25% or 15%, there’s a disappointment and then you see the stock drop. So we shouldn’t take it that way. that sector is Levy told CNBC.

“We have to be relatively calm when we look at those numbers and with the foresight. Now, when you look at the telecom companies and look at all the people who are investing in advertising, the numbers numbers are still pretty good.”

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