Ant Group’s IPO shows hot consumer tech is the new FMCG | Economic Times

Mumbai: This unproven Wall Street legend has endured nine long decades. It purportedly concerns a precocious shoe-shine boy, the father of JFK, and the catastrophic 1929 October crash that heralded the arrival of the Great Depression. The story is rather simple: When a shoe-shine boy gave stock tips to Joseph Patrick ‘Joe’ Kennedy in the summer of 1929, the wise investor equated his unsolicited advice to a grave warning sign. He cashed out – just days before the fatal crash.Nine decades later, in another October rendered more dreary and dull than usual by the protracted lockdowns, the initial share sale of a fintech company is reminding the faint hearted of the 1929 frenzy. Retail bidding for the Ant Group in mainland China and Hong Kong has lined up confirmed offers amounting to $3 trillion at last count – roughly equivalent to 80% of the 2020 nominal GDP of Germany, the world’s fourth-biggest economy.Of course, such staggering demand for the biggest IPO on record has meant unprecedented retail participation – about 800 times the stock earmarked for them in the Chinese leg of the listing. It has spawned stories of everybody and their aunt seeking a piece of Ant – at any cost. A Financial Times report published Friday, before the closure of the Hong Kong leg of the listing, cited a retiree who was unaware of Ant’s business model but willing to leverage and bid for the shares. The same report also quoted an executive at a brokerage where clients asked their kin to bid – to maximize the likelihood of allotment.So, does this evident democratization of equities as the chosen investment option point to another impending crash? Or, is this a reflection of maturing equity cultures across large economies where stock markets now have far greater depth and information symmetry than was available to the shoe-shine boy in the Wall Street legend?To be sure, the recent exuberance is bound to have its fair share of the irrational, and valuations will be frothy. Consumer technology stocks had pushed the S&P 500, the broadest US stock gauge, to highs from which the benchmark retreated more than 7% in just a couple of weeks in October. That follows a 4% decline in September.Yet, the reasons for such retail frenzy can’t be ascribed to exuberance alone – or the allure of little-understood tech.Yield Curve Drives Stock PushThe first reason is existential. Savers from Tokyo to Toronto are aware of low debt yields, with bonds roughly equivalent to the entire Euro zone’s combined economy trading in the negative. Even in relatively capital-starved but large economies, such as India, savers are getting very little from traditional deposits that are insufficient to even cover nominal inflation.So, the blockbuster retail response to Ant’s IPO is not an isolated event. In Mumbai, the response was also robust to two technology IPOs recently, although the companies involved were much smaller in scale and size. They came close on the heels of the Snowflake share sale, where the Oracle of Omaha broke with tradition to buy into an IPO that marked twin departures from his storied investment philosophy – no IPOs or complex technology.This begs the next question: Why such frenzy for technology IPOs? The definition of technology has changed. Successful technology is no longer a notoriously complex engineering concept understood only by the IIT nine pointers. Rather, the adoption of technology has been truly democratic and literacy agnostic – much more so than even the spread of the so-called equity culture. Technology has shrunk global borders, made location irrelevant and physical presence redundant, and - regardless of the periodically raging debates on the widening digital divide – drastically reduced information asymmetry.Technology Is the New FMCGWhere’s that reflected? Consumer-facing technologies have already replaced traditional consumer plays at the top of the valuation leader-boards in the US, enjoying premiums meant for the recession-proof cookies or toothpaste makers in another era. Seven out of the top ten US stocks by market capitalization - – Apple, Microsoft, Amazon, Alphabet, Facebook, Visa, and Tesla - are now top-draw consumer companies underpinned by immensely complex and interactive technologies, but don’t demand a Stanford PhD from their consumers.What’s more important, the valuations of the top five - Apple to Facebook - are a combined $6.76 trillion as of October 30, equivalent to about half of China’s GDP. Each of these companies is at the cutting edge of technology, but with mass following across borders.The US market-cap leader-board isn’t alone in highlighting the primacy of consumer technology as multi-bagger investment options – for both the pro and the novice. Blockbuster IPOs over the past decade - Facebook, Visa, Alibaba or Softbank – have gone on to show that technology might be born in the garages of Silicon Valley’s smartest minds, but its adoption has been spectacularly universal - regardless of IQ, income levels, or geography. That has whetted the appetite among their users to own the businesses that rule their daily lives – digitally.Had the shoe-shine boy advised his client to buy into Ant today, he might not have taken the stock tip as a transgression of his brief.