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Life's a Breach - Investing in Cyber Security

Wietse Nijenhuis

By Wietse Nijenhuis

Head - Equity Strategy

June 28, 2019Posted InEquities and Investment Strategy

As our lives shift online, securing sensitive data is essential not just for technology companies that monetize our data such as Facebook, but also for any business maintaining customer data, including governments. The number of data breaches in the US has doubled over the past 5 years, with the average breach costing $13m last year. Mega breaches such as the one at Equifax in 2017, which led to a 35% share price drop and senior resignations (including the CEO) have elevated the importance of cyber security. The cost of a cyber security failure are visible in more than just the share price. There are potential legal and difficult to quantify reputational costs as well.

Greater regulatory scrutiny of mega cap technology companies in the US and the introduction of the General Data Protection Regulation (GDPR) in Europe are a reminder of the importance of keeping data safe. For companies operating in Europe, simply not reporting a data breach within 3 days can elicit a fine of 4% of global revenues. It is therefore no surprise that spending on internet security is expected to grow at a compound annual growth rate over 9% between 2018 and 2022, by which time the market for internet security will reach $134bn according to IDC. Even if overall IT budgets shrink, companies are likely to prioritize security amid stricter compliance requirements and the ongoing shift to cloud. 5G rollout is another catalyst for increased internet security investment.

The ISE Cyber Security index, which tracks companies actively involved in providing cyber security technology and services, has outperformed global equities by 10% this year and by 33% over the past 2 years.

The proliferation of data is set to continue in today’s increasingly digital world. This underpins cyber security spend as companies seek ways to secure data and protect networks. Cyber security fits within the digitization theme identified by Citi Private Bank as one of three unstoppable trends in our Outlook 2019 report.

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