Uh-oh, keep your eye on the telecommunication sector this month. This is where all the action is presently, both here in Australia and overseas.
First, it was an Australian ‘spy chief’ to come out in October and warn about Chinese infiltration of the upcoming 5G network.
Now, the Financial Times reports that the top British goon is doing the same thing in another ‘rare’ speech over in the UK.
Friends, there are no coincidences. There’s some sort of PR job going on here. For what end, I have no idea.
However, we need not concern ourselves with the politics. Just focus on the economics.
The Chinese players like Huawei are being shut out of the market, rightly or wrongly. So pick up the Western firms that benefit from the free pass while you can.
US markets were down badly last night. This will punch the Aussie market in the guts today.
The way to deal with this kind of volatility is to ride a trend that’s stronger than short-term swings. That can give you the confidence to hold on.
The rollout of 5G networks all over the world is going to require prodigious capital spending.
It’s not going to stop, regardless of tariffs or weak housing markets. A great bet to take into the market is to tap into the rivers of money that will flow here.
It also makes the annual general meeting of TPG Telecom [ASX: TPM] the most interesting event of the week.
The company wants to merge with Vodafone in a $15 billion deal. However, it’s not cleared the regulatory hurdle yet.
The outcome of this decision will shape the competitive landscape as the war heats up here in Australia.
Meanwhile, Telstra [ASX: TLS] is staking the growth of its business on 5G, and the market appears happy to back the story for now.
Telstra has held up reasonably well in recent trade considering the pressure bearing down on the market.
You might argue that no consumer can even buy a 5G phone yet. But that day is getting closer…
Pricing in the future to come – now
Bloomberg reports Qualcomm unveiled the chips that will run next year’s phones. These are the ones that will be able to connect to new 5G services in 2019.
The big US telcos and Samsung say these will be available in the first half of next year. That’s probably less likely for Australia. The service will also be limited outside the capital cities.
Regardless, the market will price in the potential growth of this trend long before it officially arrives. Already, firms over in the US are factoring 5G into their earnings forecasts.
Corning [NYSE: GLW] is one of those. It’s a major US company with multiple divisions. The 5G rollout will benefit it in two different ways.
One is more business for its optical communications team. A second is for the smartphone upgrade cycle – from 4G to 5G – to rev up demand for its famous Gorilla Glass.
This is not to say you should run out and buy Corning. There are many more factors to account for in any individual stock.
It’s merely to note that analysts that cover stocks associated with 5G – in this case – build these projections into their forecasts now. That’s why they call the stock market a ‘discounting’ mechanism.
The market is always looking ahead…
Why the US market outpunches Australia
However, you do have to be clear on whether you’re investing or trading. An investment can take time to flourish, and you’ll have to ride out some rough days like today.
2018 has been a choppy year, no doubt. But 5G is a reasonable example of how productive investments that companies make now can show up in future stock market value.
This is a global trend. Benefitting from it means considering stocks outside of Australia as well.
That’s no bad thing. Diversifying away from Australia can bring great benefit. Most research and development happens elsewhere.
That means a lot of economic growth – and stock market profits – generate overseas. It’s a major reason why the ASX is still mired underneath its all-time high set in 2007 while the US has long since surged higher.
I’ve said for a long time that now is the greatest time ever to be an investor. It’s much easier and lower-cost to access incredible trends happening all over the world.
The hard part is narrowing down all the opportunities to a manageable level.
5G is one I’m prepared to back. Go here for the full story why.