Friday 29/11/19

1. In TRADE & OIL NEWS, China continues to make positive noises about trade while the EU continues to suffer and the Saudi Aramco IPO looks like it’ll shift
2. In CONSUMER & RETAIL NEWS, UK house prices rise on a monthly basis while household net worth falls, Fortnum & Mason has a solid year, Gymshark seeks funding and the FTC has the urge to purge fake five-star reviews
3. In INDIVIDUAL COMPANY NEWS, global drugmakers make big price cuts to access China and Amigo’s profits take a hit
4. In OTHER NEWS, I bring you a very weird photo…

So China is still talking a good game re US trade negotiations, the EU continues to suffer from slow trade fallout and the Saudi Aramco deal looks like it’ll be OK…

China protests US law supporting Hong Kong but signals hope for trade deal (Wall Street Journal, Lingling Wei, Philip Wen and Chao Deng) shows that China is at least sounding like it won’t let Trump’s signing of a bill supporting Hong Kong’s pro-democracy protesters derail current trade talks between the two countries as officials stressed that everything was still on track for a “phase one” agreement. * SO WHAT? * Trump has form in having selective hearing (remember when he almost destroyed Chinese telco equipment giant ZTE with sanctions before saving it, despite numerous objections from his advisers?), signed the measure the evening before Thanksgiving (meaning it would largely go under the radar) and gave himself room for manoeuvre in the document he signed with a clause in the statement emphasising “constitutional authorities with respect to foreign relations”. There is still apparent hope that a partial trading deal can be done!

Global trade slowdown hits EU the hardest, new figures show (Financial Times, Valentina Roma) cites the latest figures from the OECD which show that the current global trade slowdown is hitting the EU the hardest whilst also being exacerbated by Brexit and Germany’s current turmoil.

* SO WHAT? * Both exports and imports fell in the third quarter for all major EU economies by more than any of the other G20 countries. This is because the EU is particularly exposed to trade and has relatively open borders. Central banks have been trying to counter the slowdown by easing monetary policy, but the effects take time to filter through, so there will still be tough times ahead.

For those of you who are interested, Saudi Aramco share orders fail to break any records (Daily Telegraph, Ed Clowes) shows that the order book for the Saudi Aramco IPO appears to be more than covered, but won’t be shooting the lights out. Fun facts: almost 25% of orders from retail investors came from cash machines (?) and another 38% from online banking. * SO WHAT? * Usually, with a high profile IPO like this, you want to create a buzz and FOMO to keep the order booking ticking over. In an ideal world, you want to get the book covered many times over (e.g. if you had 100 shares on offer, you want to create a buzz that would lead to demand equivalent to 200, 300 or more shares) because this is a positive sign for what will happen in the after-market. In other words, if you have pent-up demand leading up to the offering, investors are more likely to buy in when the stock starts trading which will give the floating company a great start (i.e. share price rises strongly) and eventually lead to other similar companies to want to float in order to get themselves a piece of the action. In this case, it seems to me that underlying investor demand isn’t that strong but I think that the Saudi regime needs this thing to fly so will no doubt be putting plenty of effort and resources into making sure it doesn’t tank.

UK house prices turn up slightly but household net worth goes down, Fortum & Mason has a good year, Gymshark looks to raise money and the FTC wants retailers to purge false five-star reviews…

So how are UK consumers feeling right now? House prices increase at their fastest in 7 months (The Times, Gurpreet Narwan and Callum Jones) would suggest that, on paper, they will be feeling slightly better as the latest figures from the Nationwide Building Society show that the monthly rise in house prices for November was the highest its been since April. On the other hand, Households suffer weakest growth in net worth for decade (The Times, Philip Aldrick) paints a rather more downbeat picture as the latest data published by the Office for National Statistics shows that household wealth accumulation was badly dented by a sluggish housing market and lacklustre FTSE100 performance. * SO WHAT? * The monthly house price uptick is a mild positive (if it blossoms into a trend) but there’s no getting away from the fact that weak house price performance is hitting how “rich” people feel. I know I’m stating the obvious, but the richer people feel, the more they are likely to spend. Spending creates more wealth which creates jobs which creates more wealth etc.etc. If, on the other hand, they are in negative equity and the value of their pensions are falling because of weaker stock markets then caution is more likely to prevail, leading to economic stagnation. I don’t personally think this is a massive disaster as things stand, but if the situation persists (or gets worse) then there’s a risk of a downward spiral that will be difficult to arrest.

On a happier note, Fortnum & Mason reports bumper year despite Hong Kong protests (The Guardian, Zoe Wood) shows that the high-end department store had another good year in terms of sales and profits despite its new Hong Kong store (its first standalone store outside the UK) suffering from the effects of the ongoing protests. Sales have been boosted by the trend for upmarket tea with flavours such as chocolate violet and pistachio and clotted cream (!) as well as demand for its sparkling tea (billed as an alternative to alcohol). * SO WHAT? * I think that Fortnum’s is an example of what other department stores should be aspiring to.

It knows its customers, has a proper niche and sells to it in an environment that you just can’t replicate online. It’s an experience that people want to be part of – so if Mike Ashley can make his new “Frasers” anything like this, it would be a good thing 😜. I joke, but then he does have the brands to make it work. I guess it’s whether he can make it work fast enough and throw enough cash at it before he gets cold feet.

Gymshark sportswear brand looks to raise investment (Financial Times, Daniel Thomas) highlights exciting times for the fast-growing British clothing brand as it has appointed advisers to raise money to help it expand in the US. Gymshark, which started in 2012, is an online-only sportswear retailer that targets younger customers and has doubled annual sales for the last two years running. It now employs over 400 people and sells to 180 countries vying for position with the likes of Under Armour and Nike. * SO WHAT? * It’s great to see such a good British success story. Again, it knows its customer, focuses on what they like and sells its products in an engaging way. The fact that it doesn’t rely on physical shops keeps the costs down and it has managed to create a niche for itself by using influencers rather than traditional marketing. Good luck to them!

Talking of online shopping, Black Friday shoppers: beware of fake five-star reviews (Wall Street Journal, Suzanne Kapner) highlights a very real phenomenon with online retailing: fake reviews. According to Fakespot, over a third of online reviews on websites such as Amazon, Walmart and Sephora are fakes from robots or those who get paid to write them. The problem has become so prevalent that the Federal Trade Commission (FTC) has started to seek out perpetrators and lawmakers are appealing for companies such as Amazon to do a better job of overseeing their reviews. * SO WHAT? * This is a big deal as we head into the all-important Christmas season where online sales, which account for about 23% of total sales in the US, are expected to climb by as much as 14% this month and next, according to the National Retail Federation. The companies themselves say that they are doing as much as they can to filter out this nonsense, but I certainly get the feeling that more people are losing trust in the reviews. Although it’s great that the FTC is getting involved, I think that they need to get a big scalp before retailers ACTUALLY take notice. It is a problem that we all know about but that is very hard to police. Even influencers are getting it in the neck at the moment.

Global drugmakers cut prices to get into China and Amigo’s profits get dented…

Global drugmakers strike deal to slash prices in China (Financial Times, Tom Hancock and Wang Xueuqiao) highlights the slashing of drugs prices by Western pharmaceutical companies in China as a way of getting access to the world’s second largest drug market. AstraZeneca, Gilead, Sanofi and Roche are among those who have agreed with Beijing to give average discounts of 60% (!) on 70 drugs in order to be included on the state-run insurance scheme. * SO WHAT? * Clearly the Chinese authorities could smell the desperation of the drugs giants eager to access a growth market and the prices charged for these drugs will be the lowest in any market in the world. Call me cynical, but I expect a) Chinese copies and b) a massive black market for buying the drugs in China and selling them elsewhere. I guess it’s the price these companies are willing to pay to get some growth.

Amigo profits dive as customers struggle with loan repayments (Daily Telegraph, Michael O’Dwyer) is another story doing the rounds of the broadsheets today as high-interest lender Amigo announced a hit on profits as the number of customers struggling to make repayments trended higher than the previous year. The company has been under pressure by the regulators to do more to explain its products and has seen its shares crater by 80% this year, but when you charge an average rate of 49.9% for a loan (!) what do you expect?!? Profits were also dented by higher overheads involved in hiring more customer service staff. Still, the share price climbed by 8.3% as investors saw progress in the company’s restructuring and dealings with regulators.

And finally, in other news…

I thought I’d leave you today with the rather confusing photo in Picture of girl in park with popcorn is ‘messing people up’ and leaving them baffled (The Mirror, Chris Kitching https://tinyurl.com/rdhra2m). And on that note, I hope you have a fun weekend!