Valuations in the Valley: A Bubble Ready to Pop?
With the world economies being on the brink of the worst recession since the Great Depression in 1929, it has come as a surprise for many that stock markets have been rapidly recovering. The famous V shaped curve appears to be the norm when traders look at the indexes for stock prices n their brokerage platforms. This has been particularly true for technology related stocks such as Google, Facebook and Apple, which have reached even higher market values than they had before the March and April downfall.
Some argue that the lockdown measures adopted by many governments around the world to contain the spread of the COVID19 pandemic led to an increase in the demand for technological products and services, which is why the value of the Silicon Valley companies continues to grow. Others, however, perhaps with keener and more critical eye, believe that these stocks are in a growing financial bubble that could burst at any moment.
It cannot be denied that the global quarantine has led to an increased demand in some products and services. Locked in their homes, many people will spend more time on social media, watching movies, playing videogames and whatnot, which could explain the higher value of many tech companies. However, when one looks at things from a broader perspective it is evident that this V shaped economic recovery only exists in the computer screens of the stock traders with their broker apps. The fact that the value of stocks continues to grow while unemployment is skyrocketing across the world and the US reaches an unprecedented -32% in its GPD growth should come off at the very least as highly unnatural.
Realizing that this contradictive relation between the falling global economy and the climbing stock markets cannot keep up for long doesn’t require a deep technical analysis. Let us ask ourselves, who is going to keep paying for the fancy new phones, the expensive self-driven cars and the monthly subscriptions to entertainment services sold by the bulling companies if the economy keeps shrinking and the jobs keep getting lost? This question should lead smart investors to be wary if they want to keep a positive balance in their portfolio in the upcoming years, or even in the upcoming months.
It is important to point out, however, that wariness does not need to equate fear. If investors simply loose their confidence and start pulling out of the markets, it would only make things worse. It is not a matter of pulling out from all investments or simply saving one’s money as a gold reserve like many are doing. The people who will come out unscathed and even victorious from the eventual bubble burst are going to be those with the vision to identify which markets can truly make the best of the current situation.
As the global recession keeps deepening, the companies that will be able to thrive are those that can provide avenues for economies to remain dynamic. Financial services and technologies are fundamental here, as they can reduce transaction costs and create alternatives for consumers to manage their money, whether they decide to save or spend it. Eliminating frictions in the movement of capital can be the deciding factor on whether the money flow will remain dynamic or be pulled down into stagnation. In this sense, the financial technology (FinTech) industry is likely to become the best bet for investors, as FinTech companies are pushing the boundaries when it comes to providing different alternatives for users to invest, save, or spend. In this context, the platform being developed by the startup company Konzortia Capital seems to be exactly what the world needs right now.
By employing distributed ledger technology (DLT), Konzortia Capital is creating a platform for the global financial industry as a whole to operate. They’re a FinTech consortium composed of Novabank, InveStart and Capitalista. Novabank intends to bank the unbanked with innovative and accessible online banking services, with which money can be stored in multiple currencies and sent abroad instantly without fees. The purpose of InveStart is to allow small businesses to raise capital worldwide regardless of location, size or jurisdiction, while also making it easier for investors to find the next unicorn. As companies succeed in their capital raising campaigns, they’ll be able to issue their equities as liquid-stock like assets which can be traded on Capitalista. This is all expected to result in a new global index called the New Asset Offering, a truly global alternative to the stock markets. These interconnected services could mean, not just the shift in financial markets that the global economy needs, but also the perfect investment opportunity for individual investors to put their money on, making the best of the current situation.