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Message: <blockquote data-quote="kitk" data-source="post: 5357" data-attributes="member: 157">3. The US tech stock sell-off (By: Shu Qin)The story:US stocks have experienced extreme volatility over the past two months. The S&P 500 and tech-heavy NASDAQ ended October 6.9% and 11% down, making it the indices’ worst performing month since 2009. Investors seeking to ‘buy the dip’ were wrongfooted, as the stock sell-off continued well into November. Tech stocks were particularly hard hit. The sell-off has seen more than $1 trillion worth of market value wiped off from the big five ‘FAANG’ technology companies. Last Tuesday, Apple fell 3.9%, Facebook dropped 3.4%, Netflix declined by 5%, Amazon dropped 4.4% and Google parent Alphabet fell 2.3%.There are many factors driving the broader market sell-off, but a key reason is the US Federal Reserve’s quantitative tightening policy, under which interest rates have risen three times this year. As interest rates rise, the cost of borrowing is expected to put pressure on American companies. The fear of a global economic slowdown helps to explain the recent tech sell-off, as investors move from speculative internet and tech stocks towards safer stocks such as real estate and utilities. The US-China trade dispute may also be affecting recent sentiment towards tech companies, as many of them rely on Chinese manufacturers and chipmakers.However, some of the tech stock woes aren’t directly tied to the trade war or rising interest rates. Facebook, for instance, has come under recent fire for admitting that it hired research and public affairs companies to investigate and discredit George Soros, a well-known critic of the company’s business model. Users leaving Facebook, and the threat of litigation against the company have led investors to be wary of the future of the company. Apple, as well, has been having difficulty expanding their customer base, and recently slowed production for many of their new iPhone models. Apple will now stop announcing how many units they sold per quarter to the stock holders, which has prompted many investors to flee.Impact on businesses and law firms:For many listed companies, the sell-off presents a threat as investor fear begins leaking into other sectors and regions outside of the US tech market. Poor performance from the FAANG companies, which have led the global stock market for over a decade, has sparked investor fear that the longest bull-market in history has come to an end. Morgan Stanley, for instance, has begun warning customers that the stock sell-off indicates the beginning of a bear market. Additionally, with both the US Fed and the ECB moving towards a regime of quantitative tightening, higher interest rates are beginning to make bonds seem more attractive than stocks.The recent stock sell-off may also impact business funding models. For instance, venture capital, which drives many tech startups, may not be as easily accessible, as investors move towards more defensive instruments like bonds or consumer staple stocks. As such, companies may seek to re-evaluate their business funding options, which creates opportunities for law firms to advise on debt restructuring and broader financing.4. Fall of the pound 2016 – 2018 (By: Flora)The story:Many factors determine a currency’s rise and fall but for the pound Brexit is way ahead of other causes. The market hates uncertainty and as there was little knowledge of what Brexit really meant for the UK economy traders instincts leaned towards selling the pound. This caused the pound to fall around 11% following the referendum.The future value of the pound will be determined by the political outcome around Brexit in the next couple of years. US Investment Bank, Goldman Sachs believes the pound will rally vigorously next year against the euro and the US dollar. They forecast an increase of 4.6% and 10% from current levels to 1.176 euros and 1.41 dollars, as long as the UK shifts into a “status-quo” transition on Brexit day.Impact on business:A weaker pound benefits many FTSE 100 and FTSE 250 companies as their earnings tend to come from abroad. Therefore, a stronger pound impacts the larger more international company’s earnings, dividends and ultimately their value. The more domestically orientated mid-sized 250 index (a more diverse group of companies that better reflects the UK economy) benefit slightly less. However, compared to US companies and other peers, UK companies are underperforming in the long term.The value of the pound and share prices are thus linked (when the pound goes up shares go down and vice versa). That relationship is going to continue to hold because three-quarters of revenues from the largest 100 companies are earned from outside of the UK.Impact on law firms:London’s biggest law firms have benefited from a weaker pound due to their overseas growth. A study by PwC found that foreign exchange movements contributed around two-thirds of overall fee income growth and almost half of profit growth in the UK’s global top ten firms. Their financial results are being propped up by earnings from their array of international offices which are then boosted when converted into pounds at the current favourable exchange rates. Allen & Overy said almost three-quarters of its 2016 revenue came from issues involving two or more countries. PwC estimates the weak pound is contributing an average of £43.7 million of revenue and £16.2 million of profit to the top ten firms.</blockquote>

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