Thursday 28/11/19

1. In MACRO NEWS, Hong Kong continues to suffer protest impact while Trump endorses the movement, Seoul makes conciliatory noises to Japan and UK wages growth falters
2. In SMOKING-RELATED NEWS, British American Tobacco is hit by vaping while cannabis is on a major downer
3. In LEISURE-RELATED NEWS, South African Airways nears collapse and Thomas Cook’s failure impacts On The Beach
4. In INDIVIDUAL COMPANY NEWS, Uber’s Kalanick offloads shares and RBS launches digital bank Bo
5. In OTHER NEWS, I bring you another weirdly-flavoured KitKat and a picture of Trump that Putin would be proud of…

So Trump supports Hong Kong’s protesters, Seoul makes moves towards bridging the gap with Japan and UK wage growth loses momentum…

Trump signs bill supporting Hong Kong pro-democracy protesters (Wall Street Journal, Vivian Salama) heralds an interesting development, especially given that the US-China trade talks are at a very sensitive stage at the moment, as Trump signed the Hong Kong Human Rights and Democracy Act of 2019 which confirms and amends the US-Hong Kong policy act of 1992. It details US policy towards Hong Kong and outlines things like how to assess whether it is independent enough from Beijing for the US to continue trading with the territory (among other things) and has already annoyed the Chinese, who threatened to retaliate if the US signed it. Meanwhile, How Hong Kong’s economy is reeling from the protests – in 7 charts (Financial Times, Valentina Romei) is a good article to read as a roundup of what the impact has been thus far. Basically, tourism has dropped off, the territory fell into recession for the first time in ten years in the third quarter and retail sales have fallen sharply. * SO WHAT? * I don’t think that this is going to be taken lightly by the Chinese and makes a “phase one” agreement between the two sides less likely this side of Christmas. As for Hong Kong, economic conditions don’t look like improving anytime soon – especially if US-China trade talks continue to drag.

Seoul lobbies wartime forced labour victims to drop Japan claims (Financial Times, Edward White, Kang Buseong and Robin Harding) highlights a potentially key development that could start a thaw in the currently icy relationship between South Korea and Japan as victims of wartime forced labour are now being urged to drop lawsuits against Japanese companies for compensation. This is a departure from the rather more defiant stance

that prompted Japan to implement major export restrictions on South Korean electronics manufacturers a few months ago. There are suggestions that victims drop their claims in return for receiving payments from a central fund that would be financed by public and private sources from South Korea and Japan. * SO WHAT? * I suspect that the bad feeling between the two countries will continue for the foreseeable future. You have militant South Korean activists on the one hand who are fighting the mistreatment of their citizens by the Japanese in WWII – and emboldened by a victory in their Supreme Court last year – and then you have Japan on the other, saying that all claims resulting from that period in their history were covered by a 1965 treaty and a more recent agreement in 2015 to compensate South Korean women who were forced into prostitution by the Japanese. I have seen this issue flare up time and time again over the years, and a cynical part of me says that it tends to happen when South Korea needs a distraction from poor economic performance and/or a rallying point for its people. In my experience, Japanese people tend to be in quite surprising denial about what they did to their Asian neighbours during the War and want to forget it whereas South Koreans are taught from a young age what Japan did to them. As a result, you get a problem that is unlikely to go away any time soon but ultimately, I think that the two countries need each other and this latest development could signal one way forward. 

In the UK, Wage growth hit as workers struggle to get extra hours (The Guardian, Phillip Inman) highlights a study by The Guardian which shows that wage growth faltered last month on slowing trade and Brexit concerns. Employment fell at its fastest rate for four years and inactivity rates rose as workers stepped away from the job market rather than seek out new work. You would normally expect wage growth to be strong given the current super-low unemployment rates but it is thought that one reason why wages aren’t growing as fast as they should is the rising “underemployment rate”, which is the proportion of workers who say that they are part-time but want full-time jobs. The gloom continues…

BAT’s revenues suffer from the vaping backlash and cannabis looks like it’s on a downer…

In US vaping backlash dents British American Tobacco revenues (The Guardian, Jasper Jolly) we see that the massive backlash in the ‘States against vaping has dramatically reduced revenues for the tobacco major in its “new category” division. This is not really surprising given that the overall vaping market itself has shrunk by about 25% since health concerns related to vaping have increasingly been coming to light. However, investors were reassured by BAT’s strong sales of its traditional cigarettes, which account for the majority of its revenues. * SO WHAT? * BAT announced last month that it was going to cut 2,300 jobs by 2020 as it shifts away from traditional cigarettes and vaping has been seen, up till now anyway, as the way forward. However, when you have newsflow like last week’s identification by the US Centers for Disease Control and Prevention which said it had identified

2,290 cases of vaping-related lung injuries in the US and its territories, the future of vaping doesn’t look all that rosy. 

Cannabis euphoria dims as legal market falters (Daily Telegraph, Charlie Mitchell) is a really good summary of the current state of the effects of cannabis legalisation. It charts developments from the initial “highs” of Canada becoming the second nation in the world, after Uraguay, to legalise cannabis last year to the resounding feeling of “meh” that the market is feeling right now. The whole industry has suffered due to lack of sales outlets, challenges of reaching scale and the lack of “conversion” from black market smokers to using the newly-legitimised products. Canopy Growth (backed by Constellation Brands) sales and Aurora Cannabis’s revenues have both taken a battering and suppliers are starting to rein in growth ambitions and sack workers. * SO WHAT? * So it seems that reality is now biting in the cannabis industry after an initial frenzy. However, I think that the trend of legalisation will continue and that cannabis and its related products will be here to stay.

South African Airways hits turbulence and Thomas Cook’s demise hits On The Beach…

South African Airways close to collapse (Financial Times, Joseph Cotterill and David Pilling) highlights troubled times for the airline as it was revealed that it only paid half of staff salaries this month and is currently scrabbling around to secure finance to ensure its survival. Its situation was made worse by recent grounded flights and now the government is working with the company “to urgently formulate immediate actions that will be required to provide support to enable SAA to carry on its business”. If it can’t sort finances in the next few days, it may have to file for liquidation. * SO WHAT? * These troubles haven’t appeared overnight – the company hasn’t produced accounts for the last two years as there are doubts about it being a going concern – and it has already soaked up billions of dollars in state aid in the last twenty years to keep it going. President Ramaphosa is now in a tricky

position because he has committed to save state-owned companies on the one hand, but now faces the potentially unpopular option, on the other, of pouring even more money into something that is seen as a middle-class subsidy. Mind you, if SAA goes into liquidation, there will be huge costs to Ramaphosa’s government who would have to pay out guarantees that were agreed with lenders in the even of a default. Tough times, but a tough decision is going to have to be made pronto.

Thomas Cook collapse hits profits at On the Beach (Financial Times, Alice Hancock) highlights the ongoing fallout from Thomas Cook’s failure as related costs mounted on rival On the Beach. This all came about because On the Beach booked about 15% of its customers on Thomas Cook flights and so it had to pay out refunds as well as having to fork out more for flights that suddenly got more expensive as the number of available airline seats fell. * SO WHAT? * This sounds to me like a one-off and clears the decks for the company to increase its market share. On the Beach’s CFO Paul Meehan said that he was unconcerned by the launch of EasyJet’s package holiday business. 

Uber’s founder sells and RBS launches a new digital bank…

Uber’s founder Kalanick offloads $1.7bn of his shares (Daily Telegraph, Margi Murphy) highlights an important development in Uber’s history as it turns out that controversial founder Travis Kalanick has sold a big slug of stock since a lock-up expired on November 6th. Co-founder Garrett Camp sold about $20m worth, but still has over $2bn in the firm. * SO WHAT? * I think that this is a big deal because it takes out a major seller, which may actually help the share price. However, following on from its failure to

get a renewal on its London licence, Uber’s ‘dirty little secret’: shared driver accounts (Wall Street Journal, Parmy Olson and Sarah E. Needleman) goes into more detail as to how drivers managed to skirt the driver approval process. It doesn’t make for uplifting reading!

Then Bo peeps out into the brave new world of British digital banking (The Times, Ben Martin) heralds the official launch of RBS’s new digital bank called Bo. This is expected to be a rival to the likes of Monzo, Revolut and Starling, but it seems like it will have a job on its hands considering Fraudsters target RBS’s digital bank (The Times, Ben Martin). The challenge is big and yes, RBS is late to the party, but at least it has thrown its hat into the ring.

And finally, in other news…

I thought I’d bring you more on the whacky Japanese penchant for weirdly-flavoured KitKats in Japanese KitKats now come in edamame milkshake flavour (SoraNews24, Oona McGee https://tinyurl.com/ryvoyhh). WHAAAAAAAT??? And then there’s the rather odd photo that you just can’t unsee in Trump tweets picture of his head on Rocky’s body – but no one is sure why (Sky News, https://tinyurl.com/yx72hfsg).