Thursday 25/07/19

1. In TRADE & INVESTMENT NEWS, Hyundai Heavy Industries warns of the US-China trade war impact and tensions increase between South Korea and Japan while investors pile in to Vietnam
2. In CAR NEWS, Nissan cuts 9% of its workforce, Aston Martin has a shocker, Tesla’s tech chief leaves and Peugeot actually does quite well
3. In BANKS NEWS, Deutsche announces its worst losses since 2015 and Metro Bank’s controversial chairman “steps down”
4. In OTHER NEWS, I bring you snail racing…

So one of the world’s biggest shipbuilders calls out the US-China repercussions on trade, South Korean/Japan relations get tetchy and Vietnam sees investment inflow…

South Korea’s biggest shipbuilder warns over US-China trade war (Financial Times, Edward White) highlights the ongoing repercussions of the US-China trade war as Hyundai Heavy Industries expects flat new order growth. * SO WHAT?  * South Korean shipbuilders have about 25% market share in shipbuilding globally and so the health of their order books are often used as a bellwether of global trade. Clearly, it ain’t doing all that well currently…

Tensions between Japan and Seoul boil over in summer of discontent (Daily Telegraph, Julian Ryall) shows that tensions between two of Asia’s largest economies are rising as anti-Japan protests have been flaring up with vehicles bearing Japanese logos being smashed up and Japanese beer being poured down drains, among other things. Relations between the two countries have worsened since Moon Jae-in was elected president of South Korea in 2017 and the economy has not been firing on all cylinders of late – the Bank of Korea last week cut its GDP growth forecasts from 2.5% to 2.2% while both exports and imports also fell. Japan managed to p!ss off South Korea earlier this month by putting new controls on exports of three key chemicals that South Korean electronics companies use in flat screens for TVs and mobile phones as well as for semiconductors – something that will disrupt the Koreans because Japan has a virtual monopoly on them and they are thought to be running low with no alternative options. The Japanese alleged that South Korea is allowing banned chemicals to be shipped to North Korea (which the South Koreans deny) and is now considering making trading with them much more

difficult by removing them from their “white list”, meaning loads more admin for the South Koreans. * SO WHAT? * Put bluntly, Japan did some terrible things to South Korea when they occupied it from 1910 until the end of WW2 and South Koreans are taught from an early age what Japanese did to them. Conversely, you would be very surprised by how much WW2 history is sanitised in the Japanese education system – so you can see already that this is a recipe for disaster. It seems to me that every time things start to go a bit pear-shaped for the South Korean economy, nationalism is stirred up and you get scenes like you’re getting at the moment. Given that trade is already tricky enough with the whole US-China drama going on at the moment, you’d think that the Asian economy could do without this right now.

You will be aware that a lot of manufacturing has been leaving China and going elsewhere in Asia – and it seems that money is heading that way as well in Venture capital piles into Vietnamese technology companies (Financial Times, John Reed, James Kynge and Mercedes Ruehl) as VCs such as VinaCapital, Monk’s Hill Ventures and private equity firm Asia Partners are putting increasing amounts of money into firms like FastGo (cheaper version of Asian ride-sharing company Grab), Abivin (logistics for Vietnamese enterprises) and Logivan (the “Uber of trucking”). Trade publication Asian Venture Capital Journal states that the country saw 24 deals worth $128m in the first half of this year versus 6 worth $12m in the same period last year. * SO WHAT? * Vietnam is one of south east Asia’s biggest countries with a population of almost 100m people, but is still behind Indonesia in terms of population and Singapore as its richest. Given how things are changing in the country at the moment as companies try to diversify production out of China due to US-China tensions and rising wages, it would seem that the country will be enjoying a bit of a golden period. Whether this will last long-term is another question (this has happened before), but I think that the US-China tensions have just acted as a catalyst to what was going to happen anyway.

Nissan makes big cuts, Aston Martin has a nightmare, Tesla loses a very important guy and Peugeot actually does quite well…

There’s more trouble for car manufacturers as Nissan to cut 12,500 jobs as its profit plunges (Wall Street Journal, Sean McLain) highlights the Japanese company’s decision to axe 9% of its global workforce following disastrous quarterly profits. The company is still reeling from the whole Carlos Ghosn debacle and its increasingly fraught relationship with Renault. The cuts are supposed to be completed by March 2023 (so I guess that’s something) along with shaving over $2.8bn from operating costs. The biggest cuts will be in the US, but India and Indonesia will also get hit following the failure of the attempted Datsun relaunch. Production will also be cut in the UK and Spain. * SO WHAT? * All manufacturers are having a rough time of it at the moment as they try to trim costs and adapt to new emissions regulations, new technology and increased spending on R&D.

Aston Martin shares plunge after slump in sales across Europe (The Guardian, Rob Davies and Mark Sweney) highlights the whopping 26% share price dive in trading yesterday as the luxury carmaker announced sluggish European sales, blaming ongoing economic uncertainty. The fall in demand was way more than analyst had been expecting (particularly in the UK!), hence the share price cratering. It also rubbed salt into the wound by lowering its annual sales forecast. * SO WHAT? * The company’s share price has HALVED since it floated to great fanfare last October, when its shares cost £19 a pop. The stage is set

for Aston’s new DBX 4×4, which it hopes will ride to its rescue when it launches in December. Given that it is supposed to cost £140-160,000 I can’t see it selling like hot cakes – but the company is hoping that it will become the company’s most popular model. It doesn’t half need it! However, if it doesn’t do as well as they hope, Aston Martin will be in a whole world of trouble. I love the brand and their cars, but if economic uncertainty persists (and let’s not forget, the latest Brexit date is October 31st!) the company could have a nightmare on its hands.

Tesla’s tech chief’s exit is latest high-profile departure (Wall Street Journal, Tim Higgins) would suggest that things continue to be tricky at the top in Tesla as JB Straubel, the company’s long-serving chief technology officer (since 2005, no less!), is leaving. His is the latest departure from Tesla’s top management – and Tesla’s share price fell by 14% on the news, made worse by disappointing quarterly earnings. * SO WHAT? * Although Straubel was at pains to say that there was nothing sinister in his departure (“I’m not disappearing and I just want to make sure that people understand that this is not some lack of confidence in the company or the team”), things just don’t seem to be going well. We’ll just have to see who comes next – but whoever does has some very big shoes to fill. In the meantime, incumbent car manufacturers continue to build more electric models with no production problems…

Putting all the gloom aside, however, Peugeot owner defies global car downturn (The Times, Gurpreet Narwan) highlights record profits for the PSA Group, going against the generally downbeat industry trend. PSA’s pricing and profitability benefited from new Citroen models (the C5 and the Aircross SUV), three commercial van launches and the integration of Opel-Vauxhall in 2017. Well done to PSA!

Deutsche’s nightmare continues and Metro Bank’s chairman steps aside…

Deutsche suffers worst losses in 4 years (The Times, Oliver Moody) shows that the bad times for the bank are continuing as the announcement of its €3.2bn quarterly loss marked its worst quarter since 2015. * SO WHAT? * It’s obviously too early for his massive cuts to feed through, but the latest loss just shows how difficult things are going to be. Chief exec Christian Sewing tried to put a brave face on things when he said “If you leave aside the restructuring costs, the bank would be turning a profit and, in the

more stable parts of our business, revenues either held steady or grew”. Time will tell, but I don’t think investors are going to be too patient…

Metro Bank shares tumble to record low on chairman concerns (Financial Times, David Crow, George Hammond and Patrick Jenkins) highlights investor reaction to the clumsy plans to replace colourful co-founder and chairman Vernon Hill. Hill sounded like he’s going to be a back-seat driver to whoever takes the helm after him and the company’s share price fell by 16% in response – bringing the price down by 76% this year. Customers withdrew £2bn of deposits in the first half of this year following the scandal where the company mis-categorised its loan book. * SO WHAT? * Metro Bank is in a tough spot at the moment, but at least deposit outflows appear to have stabilised.

And finally, in other news…

I thought I’d bring you Dozens of snails race for gold at world championships (Inside Edition, https://tinyurl.com/y57xwm3k) just because, well, it’s so darn exciting!!!