Shaun Wang

For The Straits Times

We live in an age of rapid digitisation where mobile communication and cloud computing have dramatically increased cyber connectivity.

The economic benefits of digitisation are shown by leading companies such as Google, Amazon, Facebook, Uber, Airbnb, Tencent and Alibaba. Digitisation has, however, produced economic threats such as hacking, cyber espionage and fake news.

As a result, cyber security has become a key concern for countries, businesses and consumers. More than just a technical issue, cyber security is economically important. Cyber risk management involves controlling the negative aspects of the digital economy and protecting its benefits. Singapore’s ability to

manage the myriad of fast evolving threats to cyber security will determine its future economic trajectory.

On July 10, Singapore’s Government released a draft Cyber Security Bill for public consultation that ended recently. The Bill proposes handing broad authority to the Cyber Security Agency (CSA) to coordinate efforts and to designate owners of critical information infrastructure (CII). It formalises the duties of CII owners in ensuring their own cyber security, including conducting regular audits of compliance and making regular assessments of cyber threats. Failure to comply is a criminal offence carrying a maximum fine of $100,000 or a 10-year jail term, or both.

The Bill focuses on CII owners, but its impact is much broader because many organisations have business ties with CII owners.

The Bill shows that Singapore is

taking a holistic approach to cyber threats to protect the system of CII.

Although the Bill is comprehensive, it is unrealistic to expect it to cover all aspects of cyber threats or enumerate every possible situation. The Bill largely addresses computer systems, and less so false information and fake news on social media. It also does not seek to identify and prosecute the perpetrators of cyber crimes, which the law enforcement authorities are responsible for.

Research reveals that the efficacy of rules-based regulation declines when complexity increases, and the marginal benefit of compliance decreases when the cost exceeds a threshold. As such, we must weigh the cost of compliance and the economic benefit from strengthening cyber security.

To be sure, the Bill carries risks and rewards should it be passed into law. On the upside, the Bill will help Singapore become a Smart Nation

by enhancing its cyber security and information security technology. That will give the country a competitive edge and secure its leadership as a regional centre of finance, shipping and aviation.

The downside is that the costs of regulatory compliance and audits may hurt Singapore’s economic competitiveness and deter international investors.

The public needs to be kept apprised of how the Bill’s regulatory demands would be met, and an analysis of the economic costs and benefits. Singapore needs to set practical parameters and focus on pragmatic solutions. Regulatory compliance by itself is not enough to tackle cyber criminals from around the world, and spending more on bolstering cyber security may not always work. Companies should, nevertheless, be encouraged to step up their cyber defence capability.

What will become most relevant are regulations specific to individual

sectors. The efficacy of Singapore’s cyber security will depend on how the legislative Bill is translated into sector-specific regulations. The Government says it will impose reasonable regulatory requirements on CII owners, and harmonise current sector-specific regulations with the Cyber Security Bill.

No matter how much effort is invested in drafting the legislative Bill, there is not a “one-size-fits-all” solution to cyber security, as CII varies in importance. There are also questions on how small and mid-sized companies – many of whom provide services to CII owners – would be affected by cyber attacks. Some software vendors and cloud service providers operate internationally, and it is not clear how the Bill would affect them. Perhaps the Bill can give more leeway to the commissioner of the CSA in carrying out his work.

The real benefit of the Bill will be seen in how it is translated to

regulations for individual sectors. It could spur Singapore to

develop innovative risk management solutions by using the expertise of insurance and information security firms in a cost-effective way. That would ease CII owners’ regulatory burden and provide them with prevention measures and post-breach recovery plans.

Indeed, legalising the Bill could help Singapore to develop a robust cyber security system and risk management industry. The success of the Bill hinges on whether it enables business solutions to enhance cyber security.

stopinion@sph.com.sg

• Dr Shaun Wang is Professor of Actuarial Science and director of the Insurance Risk and Finance Research Centre at Nanyang Business School, Nanyang Technological University, Singapore.

Ruchir Sharma

At the height of a market mania in 1967, author George Goodman captured the mood perfectly, comparing it to a surreal party that ends only when “black horsemen” burst through the doors and cut down all the revellers who remain.

“Those who leave early are saved, but the ball is so splendid no one wants to leave while there is still time. So everybody keeps asking – what time is it? But none of the clocks have hands.”

Every decade since, the global markets have relived this party.

In the late 1960s, the mania was for the “nifty 50” American companies like Disney and McDonald’s, which had been the “go-go” stocks of that decade.

In the late 1970s, it was for natural resources, from gold to oil. In the late 1980s, it was stocks in Japan, and in the late 1990s, it was the dot.com boom. Last decade, investors flocked to mortgage-backed securities and big emerging markets from Brazil to Russia. In every case, many partygoers were still in the market when the crash came.

Today, tech mania is resurgent. Investors are again glancing at a clock with no hands – and dismissing the risk. The profitless

start-ups that were wiped out in the dot.com crash have consolidated into an oligopoly composed of leading survivors such as Google and Apple. These are giants with real earnings, yet signs of an irrational euphoria are growing.

One is pitchmen bundling investments with very different outlooks into a single package.

Last decade they bundled Brazil, Russia, India and China to sell as Bric. More recently they packaged Facebook, Amazon, Netflix and Google as Fang; then, as names and prospects shifted, subbed in Alphabet, Apple and Microsoft to make Faama. Others are hyping the hottest tech companies in China as BAT, for Baidu, Alibaba and Tencent. Whatever the mix, acronym mania is usually a sign of bubbly thinking.

Seven of the world’s 10 most valuable companies are in the tech sector, matching the late 1999 peak. As the American stock market keeps marching to new highs – the Dow hit 22,000 last week – the gains are increasingly concentrated in the big tech stocks. The bulls say it is inevitable that Apple will become the first trillion-dollar company.

No matter how surreal the endgame, booms tend to begin with real innovation. In the past, manias have been triggered by excitement

about canals, the telegraph and the automobile.

But not since the advent of railroads incited market booms in the 1830s and 1840s has the world seen back-to-back booms like the dot.com bubble of the 1990s and the one we are in now.

The dot.com era saw the rise of big companies that were building the nuts and bolts of the Internet – including Dell, Microsoft, Cisco and Intel – and of start-ups that promised to tap its revolutionary potential. The current boom lacks a popular name because the innovations – from the Internet of Things to artificial intelligence and machine learning – are sprawling and hard to label.

If there is a single thread, it is the expanding capacity to harness data, which Alibaba founder Jack Ma calls the “electricity of the 21st century”.

Market excitement about authentic technology innovations enters the manic phase when stock prices rise faster than justified by underlying economic growth. Since the crisis of 2008, the United States economy has been recovering at the rate of around 2 per cent, roughly half the rate seen for much of the past century. The areas of growth are limited in this environment. Oil’s not very euphoric, with prices depressed, while regulators are forcing banks to keep the music down. In the most direct echo of 1999, technology is once again seen as the best party in town.

It is true that prices today are not quite as widely overvalued as in 1999. Large technology stocks are up 350 per cent this decade, the low end of the range for the hot stocks from earlier booms, which saw gains of 300 per cent to 1,900 per cent. Only a few select technology companies – mainly the Internet giants – are trading close to the valuations of the dot.com era, when the average price-to-earnings ratio for tech

companies hit 50. The average ratio for that sector today is 18.

However, the scale of today’s tech boom is not readily visible because much of the investment action has moved into the hands of big private players.

In 1999, nearly 550 start-ups went public, and after many ended in disaster, the government tightened regulation of public companies.

In part to avoid that red tape, this year, only 11 tech companies have gone public. Many are raising money instead from venture capitalists or private equity funds. Venture capitalists have poured more than US$60 billion (S$81.7 billion) into the technology sector every year for the past three years – the highest flows since the peak in 2000 – and private equity investors say there has never been a better time to raise money.

These new private funding channels are creating “unicorns”, companies that haven’t gone public but are valued at US$1 billion or more. Unicorns barely existed in 1999. Now there are more than 260 worldwide, with technology companies dominating the list. And if signs emerge that the privately owned unicorns are faltering, the value of publicly owned tech companies is not likely to hold up either.

We can never know when the end will come. Still, there are three critical signals to watch for.

The first is regulation. The tech giants are seen today as monopolising Internet search and commerce, and they are angling to take over industries such as publishing and automobiles, raising alarms at antitrust agencies in Europe and the US. Fear that new Internet technologies are doing more to waste time and brainpower than to increase productivity has already provoked a backlash in China, where officials recently

criticised online gaming as “electronic heroin”.

A regulatory crackdown on tech giants as either monopolies or productivity destroyers could pop the allure of tech stocks.

The other signals are more familiar. Going back to the “nifty 50” stocks of the 1960s, nearly every big market mania ended after central banks tightened monetary policy and many people who had borrowed to get in the game found themselves in trouble.

The dot.com bubble peaked in 2000, after the Federal Reserve had increased interest rates multiple times.

The current boom will likewise be at risk if an increase in inflation compels the Fed to raise interest rates beyond the modest rise the market currently expects.

Finally, watch for tech earnings to start falling short of analyst forecasts. The dot.com boom was driven in part by increasingly optimistic predictions of technology company earnings, and it imploded when earnings started to miss badly. Investors realised then that their expectations about profits from the Internet revolution had become unreal.

Of course, no two booms will unfold exactly the same way. We are now eight years into this bull market, making it the second longest in history, behind only the run-up of the late 1990s. No bull market lasts forever, and while it is clear that we are entering the late stages of this cycle, it is impossible to say whether this moment is like 1999, or 1998 – or earlier.

The clocks have no hands, and the black horsemen may appear at any time. NYTIMES

• Ruchir Sharma, author of The Rise And Fall Of Nations: Forces Of Change In The Post-Crisis World, is chief global strategist at Morgan Stanley Investment Management.

Cyber Security Bill’s success lies in how rules apply to each sector

Market excitement about authentic technology innovations enters the manic phase when stock prices rise faster than justified by underlying economic growth.

Seven of the world’s 10 most valuable companies are in the tech sector, matching the late 1999 peak. The bulls say it is inevitable that Apple will become the first trillion-dollar company. PHOTO: REUTERS

When will the tech bubble burst?

| THURSDAY, AUGUST 10, 2017 | THE STRAITS TIMES | OPINION A27