Why EU regulation move may be more of a worry for Facebook and Google than investors think

“Shares in Facebook and Google were up on Thursday, despite comments that the German authorities still believe their activities should be regulated as if they were telecoms services providers, given that they provide messaging and email, but this may be more of a threat than investors think,” says Russ Mould, AJ Bell Investment Director.

“Google is pushing back on this view – but the irony is that major stock index providers agree with the Germans even if the management team at Google’s parent, Alphabet, does not.

“Back in January, both S&P Dow Jones and MSCI announced that from September they would reclassify the Telecommunications sector as Communications Services - and include Facebook, Alphabet, Comcast and Netflix when they did so.

“This is presumably a move designed to provide tracker-product providers and investors will an easier, more direct way of providing or gaining access to shares in these popular firms, but the precedent provided by the last amendments to the major equity sector indices is distinctly discouraging.

Source: Thomson Reuters Datastream

“In 2016, S&P Dow Jones announced that Real Estate stocks would be separated from the Financials sector and become a recognised industry grouping in their own right, no doubt in response to the popularity of Real Estate Investment Trusts at the time, especially with yield-hungry income seekers.

“Yet the creation of the new Real Estate indices appears to have coincided almost perfectly with a peak in the property sector’s fortunes, something which holders of Alphabet and Facebook stock might like to consider, especially if ever-tighter regulation starts coming their way.”

Source: Thomson Reuters Datastream

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