The End Game has arrived
Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
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The big change coming to equity markets this fall
Peter Garnry
Head of Equity Strategy
As of the market close on September 28, MSCI will make a big change to its GICS classification. Telecommunication Services changes its name to Communication Services and will be moved into the Cyclical sector index. Media companies will move from the Consumer Discretionary sector to the new Media & Entertainment industry group under the new Communication Services sector, and Internet Services in the Information Technology sector will also move to the Media & Entertainment industry group.
Lastly, e-commerce companies will move from Information Technology to Consumer Discretionary. The slide from MSCI below gives the overview.
The key points are:
● MSCI now classifies Alphabet (Google) and Facebook as media companies. This increases the probability that US regulators will do the same.
● Ebay, Alibaba, etc. will go into retailing, making the category more streamlined.
● Information Technology becomes much less software-oriented. Software, as we noted last week, has carried its performance for a decade as we wrote about last week. This means that IT will "go back to the old days” and be more concentrated on semiconductors and hardware.
● The Media & Entertainment industry group will become the dominant index weight in the new Communication Services sector. MSCI has chosen to change it to become cyclical but based on our observations, companies such as Google, Facebook, Baidu, Comcast, Disney, and Netflix do not behave in a strictly cyclical fashion as many of these services are “utility-like” for many families and businesses. So here we disagree with MSCI, but overall the new classification is a good change.
Lastly, e-commerce companies will move from Information Technology to Consumer Discretionary. The slide from MSCI below gives the overview.
The key points are:
● MSCI now classifies Alphabet (Google) and Facebook as media companies. This increases the probability that US regulators will do the same.
● Ebay, Alibaba, etc. will go into retailing, making the category more streamlined.
● Information Technology becomes much less software-oriented. Software, as we noted last week, has carried its performance for a decade as we wrote about last week. This means that IT will "go back to the old days” and be more concentrated on semiconductors and hardware.
● The Media & Entertainment industry group will become the dominant index weight in the new Communication Services sector. MSCI has chosen to change it to become cyclical but based on our observations, companies such as Google, Facebook, Baidu, Comcast, Disney, and Netflix do not behave in a strictly cyclical fashion as many of these services are “utility-like” for many families and businesses. So here we disagree with MSCI, but overall the new classification is a good change.
This is roughly the new weight composition in the new Communication Services sector:
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