Monday 27/01/20

  1. In CORONAVIRUS NEWS, fears increase about its actual spread
  2. In TECH NEWS, the UK looks likely to give Huawei a sniff, Apple faces a potentially lucrative year and a start-up aims to be the Spotify of textbooks
  3. In RETAIL NEWS, more jobs are axed in January, Space NK sinks profits into new stores and Reiss reports a good Christmas
  4. In OTHER NEWS, I show you how to solve a Rubik’s cube…



So fears increase of infection…

In Ability to spread getting stronger, China suggests (The Guardian, Rebecca Ratcliffe, Wu Pei Lin and Sarah Boseley) we see that China’s health commissioner, Ma Xiaowei, has now warned that the coronavirus may actually have spread more widely than originally thought because it may be passed on by people who show no symptoms. This would make it much harder to detect and contain. He said that “we have not identified the source of the infection and we are not clear about the risk of its mutation and how it spreads. Since this is a new coronavirus there might be some changes in the coming days and weeks, and the danger it poses to people of different ages is also changing”.

In light of that, 100,000 may already be infected, experts warn (The Guardian, Sarah Boseley and Rowena Mason) shows heightening concerns being expressed about the spread of the coronavirus and there are increasing calls for government reassurance that the NHS would be able to cope. Recent Wuhan returnees have reported a lack of

information and support and there is still no word on how/whether the UK authorities will repatriate an estimated 200 British citizens currently stranded in Wuhan. * SO WHAT? * We are still at the early stages of this virus outbreak and it seems, currently, that it might not be as deadly as SARS – but it IS causing deaths (so far with middle-aged and older people with pre-existing medical conditions) and increasing amounts of disruption. Looking at things on a purely economic basis, this is likely to adversely affect China’s GDP growth certainly in the short term, but it could bounce back very strongly if the experience of SARS is anything to go by. However, we’re still in the early stages and don’t know enough to understand the full implications as yet.

I’ve just written a Watson’s Monthly on this which gives you the lowdown on how it developed, what the human and market implications have been so far and how the coronavirus might compare with the SARS outbreak of 2002/3. It is available to PAYING subscribers (if you are on a free subscription but want access to this report as well as Watson’s Weekly, other editions of Watson’s Monthly and the recently-published Watson’s Yearly, please go HERE).



Huawei gets a limited 5G go ahead for the UK, Apple expectations rise for a strong 2020 and Perlego aspires to be the Spotify of textbooks…

UK set to approve limited 5G role for Huawei (Financial Times, George Parker and Nic Fildes) shows that Boris Johnson is expected to allow Huawei to play a role in Britain’s 5G network, but with a cap on its potential market share. The Trump administration has been putting pressure on all of its allies to completely exclude Huawei from the entire 5G network as they allege it is a security risk and will threaten US-UK intelligence sharing. A final decision on Huawei’s future involvement in the UK will be made in a National Security Council (NSC) meeting tomorrow. The head of MI5 and GCHQ, Sir Andrew Parker, believes that if Huawei is restricted to “non-core” areas of the network, like antennas and base stations (rather than core servers and the systems where customer data is processed), any risk can be managed. * SO WHAT? * This is a tricky one. You’ve got Trump on the one hand saying we have to have a complete ban (this is clearly part of the “stick” element of his ongoing US-China trade negotiations) and then our own security chief on the other saying that we will still be OK as long as Huawei only gets involved with certain bits. If you then overlay that with the fact that the PM wants fast 5G rollout, you have a difficult situation! Ericsson, Nokia and Samsung all stand to benefit at Huawei’s expense…

Then Apple was headed for a slump. Then it had one of the biggest surges ever (Wall Street Journal, Tripp Mickle) highlights the potential for Apple this year as increasing numbers of investors are buying shares in anticipation of the launch of a 5G phone from the company later on this year. The argument is that current customers are hanging onto their phones to make the upgrade, which means that there is expected to be very strong demand. Apple has also been doing well from peripherals like AirPods, the Watch

and an increase in the number of paying Music Subscribers – which is all helping to mitigate weaker handset revenues and weaker performance in China. * SO WHAT? * As Apple continues its efforts to move away from being seen as “just” a tech hardware company to a “hardware and software services company”, I think that most people would agree that another bump up in the share price just HAS to be from a new 5G phone. Some are saying that the recent surge in the share price is similar to what happened in the build-up it had in 2017 to the launch of the iPhone X. In that year, Apple’s share price shot up by 70% before falling in 2018 on concerns over sales – although analysts don’t expect the same drop-off this time as 5G adoption will still be on the upward trajectory in 2021.

Textbook publishers seek last word on digital (The Times, Simon Duke) highlights the ambitions of Perlego, which aims to become the Spotify of textbooks. The company, which has now signed up three out of the world’s four biggest textbook publishers (Pearson, John Wiley & Sons and Cengage), charges £12 per month for access to over 300,000 books in a digital library so that students can access books without having to buy them. There’s currently a shake-up going on in academic publishing as this previously lucrative area has been decimated by the likes of Amazon and others. Things have worsened so much that Pearson, the world’s #1 textbook publisher, is facing demotion from the FTSE100 for the first time ever and Cengage (the #2) and McGraw-Hill (the #3) are attempting to merge. * SO WHAT? * Publishers have been creaming the market for years by publishing new editions of popular textbooks every 3-5 years, rendering previous editions worthless and thus snuffing out secondhand demand. They have justified high prices because they say that it is a small part of the total cost of going to university/college, but their greed has now come home to roost. Amazon and Chegg currently provide popular borrowing platforms whereby they buy the books and then rent them out on a per-semester basis, so sales for the publishers are falling through the floor. Good luck to Perlego, I say! It does make you wonder, however, what that means for the textbook authors themselves in terms of income…



The number of retail jobs continues to fall, Space NK does OK but invests its profits and Reiss reports a good Christmas…

Almost 10,000 retail jobs lost in a month (Daily Telegraph) cites the latest figures from the Centre for Retail Research which found that almost 10,000 jobs have been lost since the start of 2020 as the likes of Debenhams, Mothercare and Asda have shed staff. More job losses look likely following the collapse of Beales and toy retailer Hawkin’s Bazaar. This confirms recent figures from the BRC, which show the same thing.

Space NK profits shrink as it grows skincare stores (Daily Telegraph, Hannah Uttley) hightlights a halving of profits at the high-end cosmetics retailer as it put more money into

new stores, a website overhaul and additional staff training. The chain is currently owned by private equity firm Manzanita and has 70 stores across the UK. * SO WHAT? * OK, so profits have halved, but I think that it has spent money on the right things – especially if you think that consumer confidence is returning. Presumably buying new stores is getting quite cheap these days and improving the customer experience via an improved website and better-informed staff is surely going to enhance the brand.

Reiss reports jump in global Christmas sales as it seeks a buyer (The Guardian, Patrick Collinson) showed that it’s not all bad on the UK high street as the fashion retailer announced that sales were up by 18% globally over the Christmas period. Which is all rather useful as its current owner, private equity firm Warburg Pincus, is looking to sell it! * SO WHAT? * You do wonder what brave/foolish soul would be willing to buy a UK fashion retailer at the moment – but at least this one appears to be doing well, so will look like a particularly lustrous diamond in a sea of rough.



And finally, in other news…

I thought I’d leave you today with this rather useful bit of info: Still Struggling to Solve a Rubik’s Cube? There’s an App for That (mental_floss, Michele Debczak Wow!

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Some of today’s market, commodity & currency moves (as at 0747hrs 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 **
7,589 (+1.08%)28,994 (-0.57%)3,296 (-0.87%)9,31513,567 (+1.33%)6,018 (+0.77%)23,344 (-2.03%)HOLIDAY
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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