Monday 30/10/23

1. In BUSINESS & EMPLOYMENT TRENDS NEWS, the luxury boom loses momentum, direct investment in China slows down (as does the number of tech IPOs), TikTok tightens up, grad recruitment falls, profit warnings rise and small companies get more confident
2. In CONSUMER & RETAIL NEWS, UK home insurance prices look set to rise and Frasers sells Missguided
3. In REAL ESTATE NEWS, Evergrande’s woes worsen while Zoopla highlights house price weakness
4. In MISCELLANEOUS NEWS, Byju’s shrinks and a study reckons that EVs could cause more traffic jams!
5. AND FINALLY, I bring you a fun house to play hide-and-seek…

So there are slowdowns in the luxury sector, China investment and Chinese tech IPOs, TikTok gets harsh, grad recruitment falls, profit warnings rise and small company confidence improves…

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

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Louis Vuitton juggles volume and value as luxury boom ebbs (Financial Times, Adrienne Klasa) highlights the slowdown in the luxury sector as LVMH, the luxury powerhouse that has doubled in size over the last five years, saw the pace of its growth fall from 21% in Q2 to 9% in Q3. This has been down to customers in the US and Europe reining in spending and a slow pick-up following last year’s China lockdowns and Millionaires hit brakes on supercar purchases (The Times, Max Kendix), which cites DVLA figures that show sales of new “supercars” fell by two-thirds in the year to March, confirms the trend. * SO WHAT? * After a long winning streak, it seems that the luxury sector is feeling the pinch as even the ultra-wealthy are not completely immune to macroeconomic circumstances. Given the number of luxury goods companies that have reported disappointing results recently, it does look like this is a trend rather than a blip. I would have thought, though, that a rebound in this sector will happen more quickly as I would argue that there is more likely to be a build-up of pent-up demand that will be unleashed particularly when interest rates start to come down.

Meanwhile, China suffers plunging foreign direct investment amid geopolitical tensions (Financial Times, Thomas Hale, Ryan McMorrow and Andy Lin) cites FT research which shows that the amount of money being invested in China from outside China is falling, something that will make it more difficult to the Chinese government to address its current economic slowdown. According to FT calculations based on data gleaned from the Chinese commerce ministry, the amount of foreign direct investment (FDI) fell by 34% year-on-year in September. This is the biggest drop

since monthly numbers became available in 2014. China tech IPOs decline as regulators turn tough on start-ups (Financial Times, Sun Yu) could have potentially added to this phenomenon as Chinese regulators have been clamping down on tech start-ups. Its tech-focused Star Market saw 126 companies either cancelling or suspending their IPOs in 2023 – notable because this is more than in the previous four years combined! The Star Market has been acting on guidance from regulators led by the China Securities Regulatory Commission which has raised its standards for listing applications. Companies now have to be profitable and demonstrate how their tech is at least as good as industry leaders as well as showing the sustainability of their business model before they get the go-ahead for an IPO! * SO WHAT? * Ongoing geopolitical tensions between the US and China continue to have repercussions as foreign investors are becoming increasingly reluctant to park their money in investments that could blow up in their faces either from regulatory and/or governmental intervention. The start-up thing is interesting as well – and although you could argue that having regulators effectively pick and choose which tech IPOs get their blessing is not ideal, at least it should cut out some real shockers (in theory, anyway!). I mean, what’s wrong with making them prove their business model and show that they are profitable? OK, so growth may not happen so quickly, but hopefully the companies that manage to jump through all the IPO hoops will stand more of a chance of being successful. Just have a look at the American market and pick out the absolute shockers that have had SPAC-backed listings based on fantasy valuations and finger-in-the-air projections that have cratered badly (or even failed). A bit of caution, especially at a tricky time for the Chinese economy, is surely no bad thing.

Staying on the subject of tech, TikTok Gets Tougher in Performance Reviews, and Employees Are Spooked (Wall Street Journal, Liza Lin, Raffaele Huang and Georgia Wells) shows that things are getting a bit tricky at TikTok as the company is asking managers around the world to dole out more lower ratings for employees in upcoming performance reviews. There’s talk that the number of grades at the lower end of the scale could double or even triple as a result! * SO WHAT? * Performances in appraisals are vital to a) get bonuses and b) keep your job. Clearly, this directive is going to make all employees think that this is a precursor to job losses. And I don’t think they’d be wrong…

Meanwhile, in the UK, Graduate recruitment down as vacancies plunge by 30pc (Daily Telegraph, Matthew Field) cites data from jobs search engine Adzuna which shows that UK vacancies fell for the third month in a row in September while job openings for university graduates fell by about a third over the last year. * SO WHAT? * Not great news for those who have experienced massive disruption to their education over and since Covid and who have also built up a tremendous amount of debt. Will this help to convince the Bank of England’s interest rate setters to leave interest rates as they are when they meet later on this week?

In terms of business trends, Profit warnings over worsening credit hit 15-year high (The Times, Emily Gosden) cites research from EY which concludes that the number of corporate profit warnings that came about thanks to worsening credit conditions has hit the highest level since its report started in 2008. Companies in the household goods and construction sector have been hit particularly hard. That being said, the overall number of profit warnings for Q3 actually fell year-on-year for the first time since 2021! Elsewhere, Small companies regain confidence (The Times, Max Kendix) cites the latest quarterly report from the Federation of Small Businesses (FSB) which shows that small businesses are starting to get more confident about the economy although most of them don’t think they’ll be growing over the next year. Also, the proportion who think they will be hiring has also weakened slightly. Will they be thrown a lifeline by Hunt and chums in the autumn statement next month?? I’m sure that’s what they’ll be hoping for at least.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

UK home insurance premiums are going to go up and Frasers sells Missguided…

Challenges for the consumer continue in UK home insurance prices set to jump after dire year for underwriters (Financial Times, Ian Smith) which shows that UK home insurance premiums are likely to increase by over a third over the next two years, according to new forecasts by EY. Underwriters have suffered significant turmoil thanks to unusual weather patterns, high inflation and strained supply chains – which all means that they are going to jack up premiums. EY reckons that it has been the worst period of trading for insurance companies for at least thirty years! * SO WHAT? * This is just going to pile even more pressure on already-strained household budgets. Is there anything that’s getting cheaper at the moment??

Then in retail news, Frasers sells Missguided fast-fashion brand to Shein (The Times, Isabella Fish) shows that Frasers Group has managed to offload the Missguided brand and IP for an undisclosed sum just over a year after it bought it. Shein will manufacture the products and they will be sold on its own website in addition to being sold on Missguided.com. Frasers will keep Missguided’s real estate and employees. Frasers bought Missguided out of administration for £20m last year. * SO WHAT? * I would be willing to bet my mortgage on the fact that Ashley sold Missguided on at a profit as he did buy it for pennies. Frasers said that it wanted to streamline its womenswear brands while Shein is on the hunt for brands in its European expansion. The UK is Shein’s biggest market in Europe and is one of its fastest growing areas!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Evergrande’s woes worsen and Zoopla points out house price weakness…

Property developer Evergrande faces winding-up petition in Hong Kong (Financial Times, Thomas Hale, Cheng Leng and Chan Ho-him) shows that, two years after it had its first default, the massively indebted Chinese real estate developer is facing the latest development in its seemingly terminal decline. A Hong Kong court will today address a winding-up petition brought by offshore investor Top Shine Global. * SO WHAT? * If Top Shine gets what it wants, Evergrande could face liquidation and that could be catastrophic. Problems in China’s real estate sector continue…

Then in House prices fell in 80% of UK markets this year, says Zoopla (The Guardian) we see that, according to the latest

research from Zoopla, house prices have dropped in every local market in the south and east of England this year thanks to higher mortgage rates frightening off buyers of new homes. House price growth has gone from 9.2% a year ago to a contraction of 1.1% this year. The price falls have only been modest so far – at below 5% – but the trend is there. That being said, the proportion of cash buyers has actually increased and they now account for around a third of all housing sales this year! This compares to the average of 20% over the last five years. * SO WHAT? * OK, so this isn’t great, but then again this is far from the outright collapse that many were expecting – particularly after the Truss-Kwarteng thing last year. There’s still time for it to get worse – and with an election in prospect next year, it’s likely that things will slow further as many would-be buyers and sellers will probably sit on their hands to see what the next government might bring.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Byju’s falters and a study concludes that EVs could cause more traffic jams…

In a quick scoot around some of today’s other interesting stories, Edtech group Byju’s faces shrinking empire with creditors at the gates (Financial Times, Chloe Cornish) shows that the education technology empire that Byju’s had put together over the pandemic is on the verge of collapse as the company that was once India’s most valuable start-up is about to start a programme of assets disposals to pay down its debts. It used money from loans and venture capital to fund a massive acquisition spree in order to gain

ground in the edtech space while it was hot, but this is now coming back to haunt it. Ouch…

In EVs may cause more traffic jams (Daily Telegraph, Howard Mustoe and James Titcomb) we see that new analysis from the Department of Transport found that increasing numbers of EVs will cause traffic jams across Britain as lower running costs is likely to result in more miles being driven! Hmm. An interesting problem that I don’t think many people have considered. Are we all really that lazy?? It would be interesting to see whether this trend has emerged in other countries with a high take-up of EVs.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

This does seem to be a tad contrived but it also looks like a fun place to play hide-and-seek!