US, China cyber-defense plans reveal opportunity

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UBS House View – Daily Europe

Mark Haefele, Chief Investment Officer Global Wealth Management, UBS AG 

Jon Gordon, Strategist, UBS AG Hong Kong Branch 

Vincent Heaney, Strategist, UBS AG London Branch 

Christopher Swann, Strategist, UBS Switzerland AG 

Andrew Thompson, strategist, UBS Switzerland AG 

Patricia Lui, strategist, UBS AG Singapore Branch 

In a state visit on Monday, US Vice President Kamala Harris and host Prime Minister Lee Hsien Loong of Singapore announced new bilateral cybersecurity cooperation and data-sharing agreements between their respective defense ministries, treasuries, and cybersecurity agencies. 

This came just ahead of President Joe Biden’s White House roundtable cybersecurity talks on Wednesday with the CEOs of Apple, Amazon, Microsoft, and other major private sector leaders. In public remarks before the meetings, Biden reiterated that cybersecurity is a core national security challenge for the US and encouraged private sector leaders to use their power and resources to raise the bar on cybersecurity. China, too, is shoring up its national cybersecurity, with new rules on critical IT infrastructure oversight announced last week and several new regulations governing data-intensive private sector companies. 

With governments, the private sector, and individuals all sharpening their focus on cybersecurity risks, we maintain a positive view on the industry: 

1. As high-profile attacks grow, governments and companies are spending more on cybersecurity. The size of the global cybersecurity market was close to USD 145bn last year and has been growing by 8% annually in recent years. We expect that rate of growth to accelerate to close to 10% this year. We view cybersecurity as one of the most defensive segments within IT, with spending outpacing the broader enterprise IT sector in the last few years. 

2. Individuals and smaller companies are no longer off the radar for attackers. In one recent attack, thousands of small businesses and organizations were compromised due to a flaw in third-party IT monitoring services. That incident suggests that small size or obscurity is no longer an effective shield against cybersecurity attacks. As a result, we think smaller firms may be forced to increase their security-specific spending to avoid disruptions. Individual consumers may also spend more on cybersecurity services and subscriptions. 

Market update 

Hang Seng –1%, S&P 500 futures –0.2%, with markets cautious ahead of Jackson Hole. 

S&P 500 +0.2%, reaching another record high on Wednesday. 

Brent crude –0.6% to USD 71.80 a barrel, the first decline in four days on delta concerns. 

What to watch: 26 August 2021 

• The Fed’s Jackson Hole symposium begins 

• Bank of Korea monetary policy decision • ECB publish minutes from July meeting 

This report has been prepared by UBS AG and UBS AG Hong Kong Branch and UBS AG London Branch and UBS Switzerland AG and UBS AG Singapore Branch. Please see important disclaimers and disclosures at the end of the document.

Daily Europe 

3. Cybersecurity is a key enabler for many structural growth sectors. 

Enhanced security spending and services will be needed by key growth 

sectors we like, such as 5G devices, fintech (including payments), 

greentech (e.g., solar and wind technology), automated driving systems 

in electric vehicles, and healthtech (e.g., digitalized health data). With 

only 20% penetration, cloud security will be a key future growth driver 

for the global cybersecurity market amid a broader shift to cloud and 

subscription services, in our view. 

So we view a sharpened government focus on improving cyber defense as 

yet another growth driver for the cybersecurity industry. Within technology, 

cybersecurity is one of several segments that align with our bottom-up 

preference within tech for small- and mid-cap names, and as a key enabler of 

structural growth themes. The sector increasingly aligns with a broader shift 

to subscriptions-based digital services—a market we see growing at around 

18% a year through 2025. Click here to read more on structural growth 

opportunities. 

Caught our attention 

ECB sees limited impact from delta with growth on track. The fast 

spreading delta variant will only have a limited impact on the Eurozone 

economy, which remains on track for robust growth this year and next, 

said ECB Chief Economist Philip Lane in a Reuters interview. Lane said that 

Europe’s advanced vaccination campaign and public health measures are 

making the region an exception as other countries face fresh strains on 

their health systems from surging infections. At the same time, he noted it 

is still too early to discuss unwinding of the central bank’s bond purchase 

program, saying that the main task for the ECB at September’s meeting 

is to decide on the pace of bond purchases for the coming quarter. 

Lane’s remarks reaffirm our view that the ECB will continue to adopt 

a very accommodative policy stance to support the economic recovery, 

justified by very subdued inflation. The ECB’s relatively dovish bias is 

likely to see the EUR underperform over a 6–12-month horizon, especially 

against currencies exposed to central banks that are normalizing policy. 

We maintain our view that global economic reopening remains on track, 

as rising vaccination rates and falling hospitalization levels should allow 

governments in major nations to keep their economies open. We continue 

to advise investors to stay positioned for global reopening and reflation 

while protecting against downside risks, as delta-related headlines will 

continue to introduce volatility. 

S&P 500’s 50 all-time highs. The S&P 500 closed at 4,496.19 on 

Wednesday, another record high. This brings the number of S&P 500 all 

time daily highs in 2021 to over 50, which is already more than in each 

of the past three calendar years. Against a backdrop of economic growth 

and gradually receding inflation, we see further upside for corporate 

earnings and equities. Our S&P 500 target for June 2022 is 4,800, 

and 5,000 for end-2022. We advise investors to position in stocks that 

should benefit from strong economic growth. At a sector level, we prefer 

financials, which should be well supported by rising 10-year Treasury 

yields, and energy, which we expect to benefit from a further rise in oil 

prices in the second half of the year. At a regional level, we like Japanese 

stocks as their revenues are highly exposed to the global recovery. 

Daily Europe 

German Ifo data signals weaker momentum, but recovery remains 

on track. The latest data from Germany’s Ifo Institute confirmed a further 

decline in business morale, coming on the back of recently published 

leading indicators which signaled a loss of momentum for Europe’s 

biggest economy. The Ifo index for August came in at 99.4, compared 

to expectations of 100.4, and a revised July number of 100.7. But while 

the index has now fallen for a second consecutive month, it remains at 

the highest level since April 2019, and its current assessment component 

has also improved to the highest level since June 2019 despite fading 

expectations—both of which in our view bode well for growth in the third 

quarter and the highly cyclical German market’s further upside amid the 

ongoing global economic reopening and recovery

Daily Europe 

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Daily Europe 

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