Monday 01/07/19

  1. In MARKETS, OIL & CURRENCY NEWS, China plans its own “NASDAQ”, oil prices look set to rise and we see the nature of cryptocurrencies changing
  2. In RETAIL NEWS, supermarkets drag other retailers down and Superdrug slashes its dividend
  3. In INDIVIDUAL COMPANY NEWS, AstraZeneca’s dividend looks shaky and Jaguar Land Rover invests in electric cars
  4. In OTHER NEWS, I bring you a python from Cambridge…



So China eyes a major tech boost, oil supply disruptions could cause hikes and cryptocurrencies evolve…

In China eyes $16bn boost for tech sector with Nasdaq-style board (Financial Times, Tom Hancock, Wang Xuequiao and Henny Sender) we see that Beijing is about to put a hefty amount of domestic savings into boosting the tech sector and will it to create a new stock exchange modeled on the NASDAQ, called the Star board. Unlike the Shanghai and Shenzhen exchanges, it will allow short selling. * SO WHAT? * This is a Big Deal – especially given the ongoing trade dispute between the US and China – because it will give Chinese tech companies a real alternative to listing on the NASDAQ (depending on how it’s structured and all the details). Given what’s been happening with Huawei, many Chinese companies are getting increasingly concerned about playing the role of political/trade negotiation football and a domestic alternative will certainly be more compelling in theory. Having said all that, a new Chinese exchange won’t have the pedigree that the NASDAQ has (or the same exposure to international investors), but I’m sure that it could be made very attractive to tempt companies over. I would have thought that the domestic demand would be red-hot, especially from retail investors.

Oil supply shock could send prices soaring across the world (Daily Telegraph, Anna Isaac) highlights mounting concerns that threats to one of the world’s main oil supply routes, the Strait of Hormuz, are increasing and could destabilise the Middle Eastern region. Another important supply route, the Bab-el-Mandeb strait, was attacked last year and oil analysts are now assessing the risks and potential impact on the oil price. * SO WHAT? * The Strait of Hormuz carries about 30% of the world’s seaborne crude oil supplies and the Bab-el-Mandeb route is important for Yemeni aid and Israeli trade. Swiss bank UBS thinks that if troubles escalate in the region, oil prices could shoot up from $66 per barrel to over $90 per barrel.

Following on from all the recent hype over cryptocurrencies, Has bitcoin joined the ranks of classic haven assets? (Financial Times, Eva Szalay) highlights the recent rise of bitcoin and discusses whether it is being increasingly seen as a “safe haven asset” (i.e. something to buy into when times get tough for its perceived stability). * SO WHAT? * Although this does sounds a tad counter-intuitive given that it has a somewhat shady track record and no intrinsic value, its rise coincided with rises in more widely accepted safe haven assets such as the Japanese yen, the Swiss franc and gold. Libra’s appearance would certainly have helped Bitcoin’s credibility in making everyone think it was moving closer to mainstream acceptance whenever it was announced – so the fact that Bitcoin’s rise happened against a tricky economic backdrop (including China-US-Iran problems and Brexit nightmares, among other things) may have been a happy coincidence rather than heralding the advent of a new safe haven asset.



Supermarkets drag other retailers down and Superdrug slashes its dividend…

Supermarkets behind fastest fall in retail sales in a decade (The Times, Elizabeth Burden) cites results from research from the CBI, which found that retail sales volumes fell at their steepest pace for ten years – backing up findings from reports from others such as Kantar and the British Retail Consortium. Retailers have been suffering from a combination of higher business rates, Brexit uncertainty, increasing online competition and rising wages. Patrick O’Brien, UK retail research director at Global Data, predicts a tough time going into the end of the year and warned that “it’s not even clear whether the discounters – Aldi, Lidl, Home Bargains, The Works, Card Factory – will be able to sustain like-for-like growth”. * SO WHAT? * I continue to believe that retailers that can blend a good online offering with a physical offering that customers want to go to, will survive and thrive. I think that Aldi and Lidl have an interesting physical offering because of the changing nature of their middle aisles – which gives

customers reason to visit their shops. Our incumbent supermarkets, on the other hand, are really pretty much of a muchness in terms of the goods they offer and I would argue that this makes them much more vulnerable to the online onslaught. This has to change for them to survive long term. Incidentally, I think that if Aldi and Lidl start to post disappointing numbers, the incumbent supermarkets will tank badly – because if the discounters are having a hard time you can bet your bottom dollar that Sainsbury’s et al. are having it worse.

Investor pain as Superdrug cuts its dividend by more than half (Daily Telegraph, Oliver Gill) heralds a massive dividend cut by the high street pharmacy that’s owned by AS Watson (no relation to me, sadly 😜) as the company’s profits were wiped out by higher staff costs. Superdrug is the UK’s second biggest health and beauty retailer after Boots and has actually been doing quite well recently as it has seen its market share rise from 9.2% to 9.8%. * SO WHAT? * The cut in shareholder payouts has been quite dramatic – from £50m down to £20m – so investors will find this quite painful. It’ll be interesting to see, though, whether better market share and profits will be able to offset a higher wage bill in future.



AstraZeneca’s ability to pay its dividend is questioned and JLR invests in electric vehicle capability…

Carrying on with the dividend chat, AstraZeneca’s dividend on shaky ground, says analyst (Daily Telegraph, Julia Bradshaw) highlights an assertion by Martin Hall, of Hardman & Co, that the company won’t be able to pay its dividends because its operational cash flow – the money it gets from its daily business operations – will fall dramatically due to the expiration of patents on some of its best-selling drugs, including Nexium, Losec and Seroquel. * SO WHAT? * The company hasn’t commented on this assertion yet, but if it turns out to be true, investors won’t

be happy. It will have been well aware of its blockbuster drugs coming off-patent and may well have been borrowing money to invest in its pipeline AND to cover its dividend. We’ll just have to wait to see what the company’s reaction is – and that will probably depend a lot on how much credence is given to Mr Hall’s assertions by investors.

Jaguar Land Rover upgrades UK plant for electric cars (Daily Telegraph, Oliver Gill) highlights some positive news for the embattled car manufacturer as it is about to invest hundreds of millions of pounds in its Castle Bromwich factory to develop electric cars during an upcoming six-week shutdown. * SO WHAT? * Great news in theory, but will it be too little too late?? Car manufacturers around the world are having a hard time currently and JLR itself is cutting 4,500 jobs as part of a £2.5bn turnaround plan. Let’s hope it works.



And finally, in other news…

I thought I’d leave you today with something of a warning in Giant 9ft python on the loose in Cambridge (Metro, Kate Buck Yikes!

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Some of today’s market, commodity & currency moves (as at 0848hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq**DAX *CAC-40 *Nikkei **Shanghai **
7,426 (+0.31%)26,600 (+0.28%)2,942 (+0.58%)8,00612,399 (+1.04%)5,539 (+0.83%)21,784 (+2.42%)3,044 (+2.20%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)