The War for 5G

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2018 is turning out to be a dud no matter where you look.

90% of the asset classes Deutsche Bank tracks are showing negative returns for the year.

In ‘normal’ times, you would expect at least bonds to do well when stocks don’t. That’s not happening.

Crypto. Commodities. Property. No fun around these either.

But there’s still hope for speculators and optimists.

Today’s Profit Watch latches onto one trend that’s unlikely to slow down anytime soon. In fact, you can even surf the policy agenda of the US government, too…

We’re talking about the rollout of 5G networks across the world.

This is not going to stop because US stocks are down 10% from their highs or the clearance rate on Aussie property is low.

This is the next phase of telecommunications globally, and the big capital spending for it starts now.

It’s right around the corner for users, too.

Optus chief Allen Lew has said that people in Canberra and Brisbane will get access to its 5G network first in January. Other cities will follow in March.

It’s time to jump on board. You even have something of an unfair advantage.

The US government is blocking some of the competition for the firms set to take advantage of it.

The Wall Street Journal reported on Friday that Uncle Sam is pressuring its allies to avoid doing business with Chinese telecommunications firm Huawei Technologies.

It’s the largest manufacturer of telecommunications network equipment in the world.

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Regardless, the US wants it out of the game.

That puts Japan and Germany at the top of the list of allies under the pump because those countries also host significant US military bases.

American military officials view Huawei as a Trojan horse for Chinese government spying.

The federal Australian government has already toed the line on this one.

Presumably, the other American lapdogs around the world will follow.

One honest soul quoted in the Journal suggests that Huawei makes the best equipment.

Merit doesn’t always come into the calculation when it comes to government contracts.

I know one investment writer who has recommended the big defence stocks in the US for 30 years.

They keep winning government contracts for military spending, year after year. Two of them are up at least 8,000%.

His basic thesis was never that they had the best technology. It was always that they had the best lobbyists.

It’s sent rivers of government money through their accounts.

Perhaps we’re setting up for a similar dynamic here. There are other plays we can deduce from this, too…

Hacking and cyber defenders: A growth industry

In October, Australia’s spy chief said Chinese firms had to be banned from the 5G network here. Otherwise, the electricity grid and health systems would be vulnerable.

They probably still are — just in a different way. There are plenty of rogue hackers who don’t care for nation state politics at large in the world.

5G is going to help usher in a connected world of devices, self-driving cars and much faster speeds.

That’s the good part.

It remains to be seen whether or not this same expansion opens up all our records, data and bank accounts to even more attacks.

We can take one thing for granted: The cyber defence industry is unlikely to go bust anytime soon.

In fact, we could see a surge in spending here as 5G rolls out at the same time.

The US Pentagon was hacked in October. If the Pentagon can’t protect itself completely, you and I have no chance. Cybersecurity stocks should be on your watchlist.

That’s the world we live in now.

Regardless, we can’t stop the world from turning each day. We can only position to profit as best we can.

The required capital spending for 5G is likely to benefit only a few firms.

With the Chinese out of the picture, that narrows the list down even more.

The market already knew that the American and Australian markets were off-limits.

This latest pressure from American diplomacy means that Ericsson and Nokia could carve up the European market between them.

Indeed, it’s a wonder they don’t have them all practically stitched up already — both are European firms.

We’ve already seen the European elite move to protect the European auto industry via development funding for battery plants. They’re worried about Chinese dominance of the supply chain.

5G networks are even more sensitive. 2019 could prove very lucrative for the companies in this sector. A growing industry helps. Favoured government status is even better.

My October issue of Small Cap Alpha puts three plays down for 5G. This latest news makes me even more excited now than I was then. See why for yourself here.

Regards,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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