- In MACROECONOMIC NEWS TODAY, Turkey’s nightmare spreads.
- In TECH NEWS, India aims to protect itself from big US tech and Foxconn sees profits fall
- In INDIVIDUAL COMPANY NEWS, Elon Musk expands more on the PIF discussions and Bayer drops on the weed killer ruling
- In OTHER NEWS, I bring you some impressive creating writing skills and a new umbrella innovation. For more details, read on…
So Turkey’s nightmare sparks fears of emerging market contagion…
Turkish lira crisis starts to hit other emerging markets (Financial Times, Laura Pitel, Ayla Jean Yackley, Robin Wigglesworth and Demetri Sevastopulo) follows on from what I was talking about last week as the Turkish lira hovered around record lows, falling about 10% versus the dollar at one stage as President Erdogan continued to lash out against the US in an ongoing spat that all started with the arrest of American pastor Andrew Brunson. Trump has since taken a personal interest in this case and imposed sanctions on Turkey which have contributed to the 28% weakening of the lira versus the dollar since the start of this month and the 45% drop since the start of the year. Neither side appears to be in conciliatory mood and they are both digging their respective heels in. * SO WHAT? * Obviously, Turkish bank stocks took a pasting as the country’s stock exchange hit levels last seen at the depth of the financial crisis, but its plight is showing signs of
spreading to other countries with Indonesia’s central bank intervening to support the rupiah and Argentina’s central bank making the surprise move of lifting its main interest rate by a whopping 5% to lift it to the quite frankly eye-watering 45% after six consecutive days of Argentine peso weakness. European stocks were also hit as banks with Turkey exposure, such as BBVA and UniCredit, also felt selling pressure. All of the noise and rhetoric aside, it boils down to the fact that Turkey needs to make a big interest rate increase to arrest the slide of its currency and Erdogan needs to wind his neck in over his insistence that they need to stay down in order to encourage growth. This is going to be easier said than done as Erdogan recently consolidated his power and broadened his influence by appointing his son-in-law as the finance minister, making it rather difficult to believe the independence of any decision. According to Emerging markets/Turkey: bond villain (Financial Times, Lex), this is more of a Turkey problem than an emerging markets problem as Turkey has massive borrowing denominated in dollars comparted to other emerging markets – 35% of GDP, according to Credit Suisse. In the meantime, something needs to give in Turkey otherwise it will have to impose capital controls which will probably lead to it losing emerging market status on the MSCI which will result in further losses as investors will be forced to sell out on the demotion frontier status.
In tech news, India moves to protect itself from big US tech and Foxconn sees profits fall…
India looks to curb US tech giant’s power (Wall Street Journal, Newley Purnell) shows how Indian policymakers are considering ways of restricting the growth of American tech giants such as Amazon, Apple, Google and Facebook by taking control of Indian citizens’ data and protecting home-grown start-ups. US companies are getting understandably antsy about this as they have invested billions in a growth market that has been more receptive thus far to foreigners than China. The draft of a new e-commerce policy calls for a “level playing field” and puts forward new guidelines for “encouraging domestic innovation and boosting the domestic digital economy to find its rightful place with dominant and potentially non-competitive global players”. * SO WHAT? * India has obviously taken inspiration from China, which has managed to develop world-beating companies, such as Alibaba and
Tencent, by crimping the activities of bigger foreign rivals and clearly sees an opportunity to build its own behemoths in its own backyard. The problem is that US companies have already started to pour money into the country in a bid to benefit from its 390million internet users – more than the US and less than China – in an e-commerce market estimated to be worth $33bn, according to Bain & Co. It is not clear at the moment when or whether these policies will come into force, but the impact could be potentially quite considerable, especially if the data storage requirements come into play.
I thought that Foxconn posts unexpected drop in profit (Wall Street Journal, Yoko Kubota) was worth mentioning today as it is very closely linked with the fortunes of Apple, given that the latter accounts for 54% of Foxconn’s revenues. It said yesterday that its profits for the second quarter were down by 2.2% but did not elaborate very much on the reasons. This is surprising considering that Apple said recent demand for iPhones continued to be robust. * SO WHAT? * Foxconn (formerly called Hon Hai Precision Industry) is closely followed as an Apple bellwether given that it is the company that assembles the iPhone. Its fall in profits does seem to be somewhat incongruous with Apple’s recent statements about the iPhone, so maybe this is a blip. No doubt observers will look at results of other suppliers to make sure this isn’t the beginning of a trend.
INDIVIDUAL COMPANY NEWS
Alibaba and Tencent in battle for China’s food delivery crown (Financial Times, Louise Lucas and Archie Zhang) takes a look at the battle going on between the two giants (worth a combined $900bn) as they battle for supremacy in a very competitive market. At the moment, both sides are throwing cash around in a bid to win customers, subsidising diners to the extent that they are able to eat restaurant food for less than it would cost to cook themselves! Tencent is the backer of Meituan Dianping (a company that also offers hotel bookings, ride-hailing and other services), which is preparing for a $60bn Hong Kong listing despite not being profitable, whilst Alibaba is the owner of Ele.me, which recently partnered up with Starbucks to handle coffee deliveries. * SO WHAT? * Food delivery is just another example of an industry mushrooming with multiple wannabees jumping on the bandwagon only to be consolidated into a few major players. This has resulted in individual couriers getting more expensive as companies vie for their services, impact on the environment due to pollution and plastics packaging and a great deal of money being spent on a fickle customer base that will vanish as soon as the discounts disappear. It certainly seems that only the big will survive – and other food delivery companies around the world must be watching what’s going on in China with interest.
You may recall recently that I mentioned Google’s recent upping of the ante in its China charm offensive – well in Google woos partners for potential China expansion (Wall Street Journal, Douglas MacMillan, Shan Li and Liza Lin) we see that Google has been busy in the
background by providing app developers, manufacturers and advertisers with their software ecosystem to help them reach customers both domestically and internationally. It is currently testing a mobile version of its search engine that is censorship-friendly and will use its other Chinese activities to help convince authorities to open the door that is currently locked to them. This stands in contrast to rival Facebook which is also keen on China expansion but has been less active in other areas. * SO WHAT? * This is an interesting article which looks at how Google has quietly been consolidating and expanding its relationships in China in order to be able to argue that its presence is boosting the economy and so it should therefore be looked upon more favourably as it has done a lot of work to support some of its domestic champions. From the sounds of this article, it would seem that Google has as decent chance of getting a proper foothold in the country and, given that its Asia-Pac sales rose by 36% in the latest quarter versus the same time period last year, you can see that the growth potential is clearly there. If they could unlock this, it would be an enormous coup.
In other intriguing news today, Giant Saudi fund emerges as Tesla bid backer (The Times, Tabby Kinder) looks at how Saudi Arabia’s ginormous sovereign wealth fund (called the Public Investment Fund, or PIF) is in talks that would result in it being a major investor in Tesla if it is taken private. The PIF already owns 5% of the company. * SO WHAT? * This sounds quite interesting, but I’m not sure how that’s going to affect the two lawsuits that have been slapped on Elon Musk following his tweets last week. I guess that, if the talks started before last week and had progressed to the extent that Musk could have made those claims, he will be golden. If, on the other hand, it can be proved that he was only in the preliminary stages and that his claims of finding a buyer were exaggerated, he may be in trouble. Either way, it looks like he will be taking the PIF.
Then in Phones U administrators raise £130m to take on mobile giants (Daily Telegraph, Christopher Williams) we see that the administrators for Phones 4U have built up a £130m pile of cash to go legal on the a*ses of rival mobile operators who, they allege, colluded to bring down its collapse four years ago. O2, Vodafone and EE have all denied wrongdoing, but this could get interesting given the size of the warchest built up by PwC. One to watch!
…And finally, in other news…
Tinder is not the first place that comes to mind as a hotbed of creative writing, but it appears that we are all wrong according to Man writes Tinder match sweet sonnet about love – but his verse contains a very cheeky hidden message (The Mirror, Courtney Pochin https://tinyurl.com/y7e6n8e3). This is a serious talent!
AND FINALLY, you know that I always like to keep Watson’s Daily readers at the cutting edge – well you will love this I’m sure: Bizarre ‘umbrella jacket’ on sale for £11 – but you’d have to be bold to wear one (The Mirror, Robyn Darbyshire https://tinyurl.com/y8qbh7br). Innovative, tasteful and classy!
As always, thank you for reading Watson’s Daily!