瑞信-全球-投资策略-全球股票策略：减持半导体增持全球科技股-2019.4.8-51页.pdf

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.8 April 2019 Global Equity Research Investment Strategy Global Equity Strategy Research Analysts Andrew Garthwaite 44 20 7883 6477 andrew.garthwaitecredit- Robert Griffiths 44 20 7883 8885 robert.griffithscredit- Nicolas Wylenzek 44 20 7883 6480 nicolas.wylenzekcredit- Mengyuan Yuan 44 20 7888 0368 mengyuan.yuancredit- Kartikeya Upadhyay 44 20 7888 2339 kartikeya.upadhyaycredit- Asim Ali 44 20 7883 2480 asim.alicredit- STRATEGY Reduce semis,stay overweight global tech We opt to maintain our long-standing overweight of the technology sector globally.In the current environment,we highlight the following positives:No clear-cut overinvestment:The tech share of GDP is at only average levels in the US and slightly below average in Europe and Japan.Historically,tech investment has had a beta of 2 to GDP.Defensive attributes:The sector derives defensiveness from cash on the balance sheet,low labour costs to market cap,enabling cost-cutting,short product cycles(allowing supply to quickly equilibrate)and increasingly large barriers to entry(owing to scale,ownership of data and network effects).Widespread consolidation/concentration makes the industry more rational.This defensiveness is shown by the near-zero correlation of techs performance with ISM new orders or US bond yields.Growth:12-month forward sales growth relative to the market is close to an all-time high.We continue to believe 5G,smartphones,AI,EV,3D printing and the cloud underpin growth.The scale of technical disruption and deteriorating demographics(requiring a shift from labour to IT)further reinforces the relative growth merits of tech.Valuation:The P/E relative of global tech is 10p.p.below its ex-bubble norm.The FCF of the sector is in line with the market.Credit Suisse HOLT suggests an abnormally high 3%decline in CFROI is being discounted.A hedge against Fed dovishness:Persistent Fed dovishness could create an asset bubble,and previous growth bubbles have seen P/Es rise to 45-60 x compared to 23x currently for global software).Other supports:Relative earnings revisions are at a trough,and inflows are not excessive.What are the concerns?Regulation(but we think this affects data privacy largely),and the sector is overbought(implying near-term consolidation).Our biggest overweight since 2010 has been,and remains,software:We are positive on Microsoft,SAP and Oracle.We like gaming(where P/E relatives are at post-2008 lows),with gaming trading on 1.7x 2021 sales(Outperforms include Electronic Arts and Nintendo);cyber security trading on 1.7x 2020 sales(eg Splunk and Zscaler).We stay overweight telecom equipment(eg Nokia).We also like Amazon(19E FCF yield of 4%),which has lagged relative earnings revisions,and Alphabet(FCF yield of 3.6%).We downgrade semis to benchmark(having upgraded on Dec.19th).P/E relatives are at levels from which the sector has underperformed c75%of the time,while the stocks are now pricing in an above-average level of profitability using HOLT.The sector is now discounting above-trend growth in the US.It tends to be the worst-performing sector when the yield curve inverts.We worry about a lengthening smartphone cycle(c30%of semi demand).8 April 2019 Global Equity Strategy 2 Key charts Figure 1:The net tech investment share of GDP is at average levels Figure 2:Tech has low leverage and has little correlation to macro momentum Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research Figure 3:Tech companies have high market cap but few employees and are thus less vulnerable to rising wage costs Figure 4:The forward P/E relative of global tech is below its ex-bubble average Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research Figure 5:The market seems to be pricing in a near-record decline in global tech CFROI Figure 6:We downgrade global semis,partly as they are increasingly expensive on 12m forward P/E Source:Refinitiv,HOLT,Credit Suisse research Source:Refinitiv,Credit Suisse research -0.2%0.3%0.8%1.3%1.8%19601968197619841992200020082016US Net tech investment,%of GDPCons DiscCons StaplesEnergyFinancialsHealth CareIndustrialsITMaterialsTelecomsUtilitiesSemisS/W&SvsTech H/W-0.7-0.5-0.3-0.10.10.30.5-4.00-2.000.002.004.006.00Global market sectors-Net debt/EBITDA10-year Correlation with ISM new orders050000100000150000200000250000300000350000400000450000500000NetflixFacebook AlphabetTencentP&GDeutscheBankGeneralMotorsAT&TMarket Cap($m)Employees80%130%180%230%280%19751981198719932000200620122019Global Tech P/E rel MarketAverage+/-stdev(ex.bubble)-3.5-2.5-1.5-0.50.51.52.5199720002002200520072010201320152018Spread between market implied CFROI andconsensus forecast CFROI for Global tech(p,p)80%85%90%95%100%105%110%115%120%2010201120122013201420152016201720182019Global Semiconductor:12m fwd P/E rel tomarketAverage(+/-1sd)8 April 2019 Global Equity Strategy 3 Table of contents Global tech remain overweight 4 Why do we remain overweight technology?.5 1.Tech remains a structural growth story 5 2.Tech has also become implicitly defensive 6 3.Wage growth is less of a concern for tech 10 4.Tech is a key growth sector 10 5.Tech has maintained superior asset turns to the market a sign of a solid business model 12 6.Valuations,both top-down and bottom-up,do not appear to be a problem 13 7.The recent Fed U-turn could lead to a growth bubble 15 8.Beneficiary of a weaker US dollar 16 9.Earnings revisions looking like they are troughing 16 What are the risks?18 Software remain strong overweight.20 Cyber security a regulation-enforced growth story 25 Electronic gaming the creator of content 27 Semis reduce to benchmark.29 Which part of the bull story remains?33 Other subsectors of tech.37 Amazon the dominator 37 The value of the internet 39 US/European telecom equipment 40 Data centres Providing infrastructure for the data boom 41 Alphabet The internet giant 43 Chinese tech 44 Appendix 45 8 April 2019 Global Equity Strategy 4 Global tech remain overweight The fourth quarter of 2018 saw tech underperforming by 11%from peak to trough;the largest quarterly fall for the sector in over a decade.However,since then,tech has reverted to its all-time highs.Figure 7:The price relative of US tech is back above its 2018 peak Source:Refinitiv,Credit Suisse research Within the subsectors of tech,the standout this year and in 2018 was software.The laggard has been gaming.There has been a big reversal in China tech.Figure 8:Performance of tech subsectors through 2018 and year-to-date Source:Refinitiv,Credit Suisse research 100%102%104%106%108%110%112%114%Jan 18Apr 18Jul 18Oct 18Jan 19US Tech rel US mkts,100%=Jan 2018Global TechGlobal SemisGlobal SoftwareGlobal GamingGlobal CybersecurityUS TechChina TechKorea TechTaiwan TechEurope Tech-20%-15%-10%-5%0%5%10%15%20%-20%-15%-10%-5%0%5%10%15%20%2018 price performance,rel to MSCI ACWI(%)Year-to-date performance,rel to MSCI ACWI(%)Outperformed 2018 and YTDUnderperformed 2018 and YTD 8 April 2019 Global Equity Strategy 5 In our 2019 Research Outlook:Themes,Sectors and Styles(19 December),we advised investors to maintain a strong overweight of tech and upgraded semis to overweight.We remain a strong overweight of tech and recommend focusing on software,electronic gaming,telecom equipment,data centres and cyber security,Amazon and Alphabet but reduce semis to benchmark.Why do we remain overweight technology?There are nine reasons why we advise retaining an overweight position on technology:1.Tech remains a structural growth story We would consider overinvestment in the tech sector a clear warning sign,as was the case around the turn of the millennium.However,the tech investment share of GDP net of depreciation is only in line with its 50-year norm of c.0.75%of GDP.Moreover,tech investment as a share of non-residential investment is only at its post-1996 norm.We believe that,over time,tech investment should rise relative to total investment.Figure 9:The net investment share of GDP has recovered to average levels Figure 10:The tech share of non-residential investment is at its 20-year norm Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research If we look at Europe and Japan,we find a similar picture.Figure 11:Investment in tech as a share of overall GDP is also low in Europe and Japan Source:Refinitiv,Credit Suisse research-0.2%0.3%0.8%1.3%1.8%19601968197619841992200020082016US Net tech investment,%of GDP5%10%15%20%25%30%35%1961196719731980198619921999200520112018US Tech spending,share of total non-res.investmentLatest2.5%2.7%2.9%3.1%3.3%3.5%3.7%3.9%0.5%0.6%0.7%0.8%0.9%1.0%1.1%199519971999200120032005200720092011201320152017Investment in tech,%of GDPEurope,lhsJapan,rhs 8 April 2019 Global Equity Strategy 6 Historically,the beta of tech investment to GDP in the US has been just above 2.Credit Suisse economists forecast of 2.3%GDP growth in the US in 2019 would indicate around 4.6%growth in tech investment.Figure 12:Tech investment has a beta of above 2 to GDP growth in the US Source:Refinitiv,Credit Suisse research 2.Tech has also become implicitly defensive Despite having above-average exposure to the cycle,the tech sector appears to have elements of the best of both worlds and is implicitly defensive to some degree,in our view,since:i.Companies in the sector generally have under-leveraged balance sheets.The tech sector is the only sector globally to have net cash,as shown in the first chart below.This is an important advantage at a time when we believe the credit spreads are likely to rise.Figure 13:From a balance sheet perspective,tech remains highly attractive Figure 14:Net debt to EBITDA for tech and the market Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research -8-40481216-6-4-2024620042006200820102012201420162018US GDP growth(%chg Y/Y)US tech investment(%chg Y/Y,rhs)-0.50.00.51.01.52.02.53.03.54.04.5UtilitiesCons DurF&D RetailFood&BvAutoMediaH/C Eq&SvsCons SvsTelecomRetailingPharmaMaterialsPers&HH GdsTech-1.0-0.50.00.51.01.52.02.519901992199519982001200420072010201320162019Global sectors net debt to EBITDATech sectorMarket ex-financials 8 April 2019 Global Equity Strategy 7 ii.Technology is deflationary and the sector has learnt to live with negative pricing Technology pricing,as proxied by the tech deflator,has fallen by 0.7%per annum over the past five years(owing to rising productivity),resulting in technology becoming increasingly competitive against labour.Thus technology is well suited to a world facing structurally disinflationary forces caused by both disruptive technology and China exporting its excess capacity and moving up the value-added curve.iii.Product cycles give tech a degree of reduced sensitivity to economic cycles The relatively short product cycles and rapid innovations inherent in technology tend to force an upgrade cycle on the consumer,giving tech a lower sensitivity to the cycle than other industries.Many software products facilitate cost reductions and thus,for example,demand for such products can rise into a downturn.US tech retail sales held up far better than overall retail sales during the global financial crisis.Since September 2007,sales of tech products in real terms have grown by nearly a factor of two,while overall retail sales have grown by just 20%.With labour gaining some pricing power relative to the price of technology,we would expect a general acceleration in the switch from labour to capital.Figure 15:The price of a unit of tech investment is falling relative to the unit cost of labour Figure 16:Retail sales of electronic products have far outpaced broader retail sales volumes Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research To some extent,tech has become more defensive because of its scale,consolidation and barriers to entry.To give specific examples,Facebook and Alphabet control around 84%of the online digital ad market(according to Group M);Microsoft dominates the personal computer OS market;Amazon dominates the online retail space;Tencents WeChat and the number two player combined have a 90%+market share of e-payments in China;and the DRAM,NAND and 300mm silicon wafer markets have fallen to three or four major players.Not only are many markets concentrated,but the top player can often control as much as half of the market share(e.g.SEC in DRAMs),implying a greater ability to behave rationally to preserve market share.5060708090100110120130200220052008201120152018US unit labour costs:1.0%p.a.US Tech deflator:-3.5%p.a.US Software deflator:-1.8%p.a.8010012014016018020022024020072009201020122013201520172018US retail sales,electronic goods(Sep 07=100,constant prices)US retail sales,total(Sep 07=100,constant prices)8 April 2019 Global Equity Strategy 8 These dominant positions are likely to be maintained,in our view,since barriers to entry are high.We think the key barriers are:The scale of network,which is exceptionally difficult to replicate.Facebook,for example,has around 2.1bn monthly active users,or nearly half of all internet users(estimated to be 4.3bn as of 2019 by Nielsen)while YouTube has local versions in nearly 90 countries and over a billion users(more than a quarter of global internet users).The magnitude of R&D required and capex.Based on Credit Suisse HOLT analysis,Amazon and Alphabet spent$27bn and$21bn,respectively,on R&D in 2018,and an effective$13bn and$23bn on capex.These R&D budgets dwarf those of most other listed companies.Data creates a barrier to entry:The creation of data,ownership of data and the ability to process data have become key barriers to entry.The ability to buy competitors:The low rate environment and often high multiples mean that companies have the ability to buy competitors or new growth business areas and to fund moonshot projects.People:The winners are typically able to employ the best people in an environment where there is a growing shortage of skilled,experienced programmers and software developers,among others.For example,there has been a 517%and 132%increase in demand for software engineers with blockchain development skills and security engineers,respectively,in 2018,according to a recent report from job search site Hired.This defensiveness is also reflected in in the sectors correlation with the ISM New Orders index,which has remained negative.Based on a combination of low leverage and limited sensitivity to the cycle,tech scores well.Figure 17:Technologys correlation with ISM is negative and thus shows it is defensive Figure