Thursday 05/03/20

1. In CORONAVIRUS NEWS, China makes steps towards normality and we see an array of winners and losers
2. In FINANCIALS-RELATED NEWS, Alibaba buys into Klarna while Facebook changes plans for Libra
3. In INDIVIDUAL COMPANY NEWS, GM makes a battery breakthrough, Flybe nosedives, Intu is in big trouble and John Lewis pays a token staff bonus
4. In OTHER NEWS, I bring you some spooky ice homes…

So China shows some signs of returning to normality while coronavirus winners and losers abound…

Pollution is not something that people would normally celebrate as a good thing, however Pollution levels in China climb as economy regains pace (Daily Telegraph, Tom Rees and Alan Tovey) suggests that things may be heading towards normal as satellite data from the Centre for Research on Energy and Clean Air shows that levels of nitrogen oxide in China’s atmosphere has shot up by almost 50% since the middle of February. This would imply that more factories are coming back online and that air travel and traffic are returning, although pollution levels are still down by 20% versus last year. * SO WHAT? * It may well sound a bit random for economists to use data like this to get a steer on the Chinese economy, but the thing is that there is general scepticism on the accuracy of official data. Clearly there is an increased likelihood of data being fudged at the moment because China wants to give everyone the impression that everything’s back to normal and so the temptation to gloss over less optimistic data will be very strong. Having said that, the China Passenger Car Association unveiled horrendous February car sales figures – down 80% – after showing some early signs of recovery going into the end of last year/beginning of this year – so it’s still grim out there.

The coronavirus is obviously taking a serious human toll, but if we put that aside for a moment, I wanted to take a look at which businesses and industries are losing out – but also which ones stand to gain. Coronavirus is devastating the conference circuit (Wall Street Journal, Collin Eaton, Rebecca Elliott and Elizabeth Findell) shows how festivals and other events are being cancelled all over the world as over 440 trade shows and exhibitions (and rising) have been cancelled or postponed, according German expo trading magazine m+a, causing massive losses not only for the venues, but also airlines, hotels and any other related businesses. Unsurprisingly, Coronavirus leaves cruise industry with cancelled trips

and half-empty ships (Wall Street Journal, Costas Paris and Dave Sebastian) shows that the outbreak has killed demand, just when things were looking up. Some industry executives expect the likes of Carnival, Royal Caribbean and Norwegian Cruise Line to lose over $550m in Asia alone as demand has just dried up. On the other hand, Higher gold prices push up profits at Polymetal (The Times, Emily Gosden) shows that gold prices, pushed up by investors seeking a “safe haven” is already benefiting the precious metal mining company and Picking tech winners from the coronavirus outbreak (Daily Telegraph, Robin Pagnamenta) highlights other areas which stand to benefit from current circumstances. Given the enforced isolation of many at this time, video gaming is an area that is likely to do well as it is an activity that does not require travel or human contact. Global mobile game downloads were up by a whopping 39% in February (they were particularly strong in China) and Apple’s App Store in China saw a 62% hike in game downloads alone as games like Brain Out and Honour of Kings proving to be particularly popular. Companies such as Activision Blizzard (Call of Duty, Overwatch etc.), Ubisoft (Assassin’s Creed etc.) and Tencent (Honour of Kings etc.) have been outperforming recently and video streaming services such as Netflix, Disney+ and HBO Max should also benefit for the same reasons. With more people working from home, Zoom Video has seen its share price rocket from $76.30 on January 31st to $117.47 yesterday. Cloud service providers like Microsoft, Google and Slack also stand to benefit and it is also likely that supermarket home deliveries will increase. Another possibility is that people couped up indoors may want to exercise without the prospect of infection – which could help companies such as Peloton Interactive. * SO WHAT? * The human cost is obviously terrible but, putting that aside, when things like this happen winners and losers always emerge. In my former life as a stockbroker, major events always prompted loads of questions from clients about how to quantify the impact on individual companies, industries and geographies as they were always keen about damage limitation – with an eye to moving money into areas that would emerge unscathed or enhanced in order to mitigate any potential losses they may be facing.

Alibaba buys into Klarna and Facebook reels in its plans for Libra…

Alibaba pays now to buy stake in Klarna (The Times, Ashley Armstrong) heralds an important development (and endorsement!) for Klarna, the “buy now, pay later” business, which now works with over 200,000 retailers in 17 countries and has over 85 million customers worldwide. The company said that Ant Financial Services Group had bought a minority stake (in this case, less than 1%) as part of a strengthening relationship between the two. Klarna offers shoppers two options – “pay later” where customers have to settle their bills in full after 30 days (good for those who are likely to return their clothes) and “pay in three” where you pay a third at the point of purchase, a third after 30 days and the final third 30 days after that. It makes most of its money from the fee it charges retailers to

provide this service. Klarna unveiled its first ever annual loss last week. * SO WHAT? * I think this is great for Klarna and may well hearten investors as having such a big player on board could prove to be very useful – especially if things get tricky. On the other hand, Ant Financial has only taken a tiny stake, so it’s not really that big a deal at this stage although maybe it will be in future – this is certainly a situation worth watching.

Facebook eases back plans for digital currency (The Times, Tom Knowles) shows that Facebook is potentially pulling back its plans for Libra and is thinking of offering digital versions of existing currencies instead. After massive backlash and criticisms from politicians and central bankers alike since it announced its intentions last June, it seems that Facebook is now considering making Libra a payments network that can use a variety of currencies whilst not completely ruling out the digital currency just yet. * SO WHAT? * It’s all talk now, but it’s interesting to hear that Facebook is at least considering other options. Given the massive resistance it encountered, it is hardly surprising…

GM makes a battery breakthrough, Flybe hits the dirt, Intu is in a bad place and John Lewis staff get a token bonus…

GM to boost electric car investment after battery breakthrough (Financial Times, Peter Campbell and Claire Bushey) is a very exciting-sounding headline, don’t you think? The company said that it would be boosting spending on electric and autonomous vehicles to $20bn by 2025 following a breakthrough with its battery technology that will not only give its vehicles longer range, but they will be quicker to charge and cheaper to make. Hoorah! Interestingly, the first vehicle to use this tech will be an electric GMC Hummer (!) which is due for release later this year. * SO WHAT? * Wow – if this works, it could be a game-changer! This will no doubt up the pressure on the other carmakers to innovate faster…

In Flybe collapses after last-ditch talks with government fail (Financial Times, Tanya Powley and Jim Pickard) we see that the UK airline has now gone into administration as talks with the government to get a £100m loan fell apart. It has been looking dodgy for quite some time now, but the precipitous drop in demand in the wake of the coronavirus was clearly the final nail in the coffin. All flights were immediately cancelled. * SO WHAT? * Flybe had already flirted with falling into administration last year, but it was

rescued by a consortium called Connect Airways and limped along for another year. Flybe has been responsible for 40% of all UK domestic flights and carries over 9m passengers per year and its collapse puts into question the future of many regional flying routes. Presumably, some of the railway operators will now benefit from this somehow.

The gloom continues in Struggling shopping centre owner abandons £1bn cash call (The Guardian, Mark Sweney) as troubled retail property landlord Intu, which owns the Trafford Centre in Manchester and Lakeside in Essex, has decided not to ask investors for £1.3bn in an emergency funding round after all. It’s not clear how the company will be able to finance its massive £4.5bn in debt and it could start to breach bank covenants in July. * SO WHAT? * Intu’s share price fell by 40% on the news in trading yesterday and I struggle to see how anyone could find them attractive at the moment. I would have thought that some kind of break-up is looking more likely – but who is going to want to buy its assets at such a difficult time in the economic cycle? The company will announce its 2019 results next Thursday and I expect they will make for uncomfortable reading…

Then Token bonus of 2pc at John Lewis (Daily Telegraph, Hannah Uttley) shows that John Lewis and Waitrose staff didn’t get doughnuted on the bonus (a City slang term for getting ZERO bonus – the shape of a doughnut), but they did get a very small 2% – its lowest level since 1953. The new chairman announced this at the company’s results presentation. Times are likely to get tougher still.

And finally, in other news…

There are slim pickings for “alternative stories” today, so I thought I’d leave you with the amazing scenes in New York homes encased in ice after freezing temperatures and strong winds (Sky News, Isobel Frodsham https://tinyurl.com/rv23wvx). Spooky!