Facebook shares tumble as FTC announces probe
Magellan Financial chief executive Hamish Douglass says social media giant Facebook shares are undervalued but the threat that the platform is "weaponised" by foreign actors is far more of a problem than data privacy breaches.
Speaking at a panel at an event hosted by Livewire Markets, Mr Douglass said the $65 billion fund was the most cautious on equity markets it had been in almost a decade and had increased its cash holdings.
The fund has a significant holding in Facebook whose shares have fallen 17 per cent in value since revelations that consultancy firm Cambridge Analytica was able to access user data on the company's platform.
"Tying down the privacy data rules is not going to ultimately impede this incredibly powerful advertising model, the likes of which the world has never seen before," Mr Douglass told the panel.
But he said the biggest issue for Facebook "is weaponising the platform" whereby states are able to create fake profiles and infiltrate news feeds of users with the intention of influencing opinions.
"How do you stop foreign actors with espionage [intentions] impersonating other people? I think this can only happen with the full co-operation of the security agencies, regulators and the platform."
Lack of appetite
There is a risk, he said, that regulators take the "nuclear option" and hold platforms like Facebook liable for fake posts, but he said there appeared to be little political appetite to go down that path.
Mr Douglass said the fund was increasingly cautious on the outlook for equity markets and had increased its cash position to the highest level since around March 2009.
"We think the risks are asymmetric to the downside."
Also on the panel was famed Sydney-based hedge fund manager Phil King of Regal Funds management, who was more optimistic about the outlook for markets.
But Mr King said he was paying attention to bond markets.
"It seems like bond yields have fallen for 40 years and now they are rising.That's a very different environment," he said
In response to rising interest rates, Regal was avoiding expensive "bond proxy"Â and growth stocks and shifting towards companies that will benefit from rising inflation. This includes companies in the energy and mining sector and "those stocks that can pass through price rises".
Glory days over
In a response to a question about the impact of the Hayne royal commission on banking stocks, Mr King conceded "it would be tough" for the major banks that dominate the S&P;/ASX 200 index.
"I don't think they will ever regain their glory again. We have seen a big de-rating and it is probably deserved," he said.
But Mr King cautioned against being over-bearish.
"The banks are not going broke. Their balance sheets are probably in better shape than they've ever been for a long time and loan losses remain low. I don't think you want to get too negative on the banks.
Steven Ng of small cap fund Ophir told the Livewire panel that in an environment of low volatility, it was advisable to "buy quickly and sell slowly" as share prices edged higher.
But as markets head into a period of higher volatility "you probably want to do the opposite".
"You want the ability and firepower to get set in positions when the market corrects, and there has been no fundamental underlying change in the business."
