Our senior equity analyst Brian Han called out a number of “fearless predictions” for the new year in his column, Brianstorm. In his own words: “Some may appear improbable, but that is why they are fearless rather than timid predictions”.

So here they go!

Crypto currencies in freefall

Crypto currencies continued to catch the imagination of investors in 2022. Even this year’s US Superbowl included a 30-second commercial by Hollywood actor Matt Damon flogging the crypto exchange company Crypto.com. That mega event was in February. Since then, the digital token has gone into freefall and in fact collapsed as highlighted in the chart below.

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The year also saw the high-profile collapse of the crypto exchange FTX with “contagion impacts still spreading as we speak,” according to Han. Importantly his assessment also highlights some lessons for investors.

He reminds investors that these digital tokens are not money. There are no central banks to maintain their purchasing power over time and there is no such thing as product disclosure statements or prospectuses to examine. Finally, there “are no regulators to complain to if you lose your cryptocurrency or succumb to scams in the digital wildland”.

“It is fascinating how something with no intrinsic value can be subject to such fervent speculation and interest, and lead to such unimaginable wealth transfer and destruction,” Han says.

A number of lessons from the FTX collapse have already been called out . Han adds that investors also need to understand the nuances between speculating and investing.

“For any contrarians tempted to wade into the cryptocurrencies at current levels, just be clear about your motivation for doing so. Do not kid yourself that they are “investments”. Rather, be upfront about the fact that you are speculating and adjust your risk-reward expectations appropriately.”

A new shareholder risk emerges

High profile data breaches played out in the latter part of the year. Think Medibank (MPL) and Optus. According to Han, cybercrime will “jostle with climate change as the numero uno concern” for businesses.

In part, this is because sharing data is now part of living in a new world that includes social media and digital interaction with everything we do, from booking restaurants, plane tickets and even processing our health claims. In fact, Han notes that around 50% of cyber security incidents occur in sectors that hold the most sensitive information on its customers, such as government, health, financial and the utility sectors.

This will result in increasing shareholder scrutiny, Hans says. Companies will now have to communicate on how they safeguard their customer data, how they address security breaches and what the cost would be in the event of a breach. It’s also a risk that aligns with environment, social and governance (ESG) concerns. Morningstar’s US-based ESG analyst Emma Williams now sees data breaches as “dynamic ESG issue”.

Goodbye social media giants?

Han’s most bold prediction is a shift from the social media giants particularly following concerns about data breaches and privacy. This is particularly the case for younger people whose social media usage is plateauing. The chart below shows engagement with social media by young people aged 18 to 29 is actually declining – at least in the US.

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Hans even predicts generations will embrace ‘dumb technology’ such as the Nokia 2760 flip phone!

The outlook for social media giant Meta is not that bleak according to our US-based equity analysts. Despite the rise of other social media channels, Meta or Facebook still has a massive user base. Twitter, on the other hand, has gone private but even Han’s notes: “Perhaps Elon Musk is doing us all a favour by taking over Twitter and making it a niche platform for just those who like the sound of their own voice!”

As we move into the festive period, Hans says perhaps many of us will revert to meeting family, friends, and business partners face-to-face, appreciating the nuances of eye contact, body language and emotional connection.

Frothy markets and falling M&A

This year, there were a number of private equity bids for quality businesses including Ventia (VNT) and Ramsay Healthcare (RHC) (the latter failed).

But as seen in the chart below, M&A volumes have plummeted, and Han expects the trend to continue.

Consequently, significant layoffs at investment banks look inevitable, Hans says, noting there is simply not going to be enough deals and “moolah” to feed all the expensive mouths in 2023.

Again, another lesson for investors is outside quality businesses, speculative investments will not attract any money. “If you are nursing large losses on speculative or “concept” stocks and are hoping for a white knight to buy your shares out at a premium, think again,” warns Han.

“Those speculations and concepts may have sounded great at the time but rising interest rates are like gravity pulling them back to reality.”

Importantly, the predictions prove that investors need to always remember to keep that long-term mindset and focus on quality businesses with intrinsic value.

In Han’s own words: “For the eternal optimists, there are no “get-rich-quick” ideas because those do not work.”