Tuesday 23/07/19

  1. In MARKETS & OIL NEWS, China’s “Nasdaq” has a stellar debut and the oil price says “meh” to Iranian actions
  2. In TECH NEWS, Equifax pays a big settlement for a data breach, China’s ByteDance builds an Indian data centre and Microsoft invests $1bn in OpenAI
  3. In RETAIL NEWS, hopes of Mr Ted Baker’s return buoy shares, Homebase takes on Bathstore and Sports Direct drops its lawsuit with Debenhams
  4. In INDIVIDUAL COMPANY NEWS, ABInBev sells off its Aussie beer to Asahi and Starbucks gets tecchie
  5. In OTHER NEWS, I bring you an optical illusion…



So China’s “Nasdaq” has an auspicious start and oil prices don’t move on Iran’s actions as much as you might have thought…

Chinese tech shares leap up to 500% as Nasdaq-style market launches (The Guardian, Kayleena Makortoff) heralds a positive start for Shanghai’s new Nasdaq-inspired stock exchange on yesterday’s debut. * SO WHAT? * The launch of this Chinese alternative to the Nasdaq (called the Star market) came against the backdrop of continued US-China trade tensions, gives Chinese tech companies with US exposure an escape route (although that’s not how it’s officially billed!) and provides such companies a way to tap into a domestic investor base that is arguably more hungry for tech than its American counterpart. It is also part of the overall efforts of Chinese authorities to take back their tech darlings who have preferred the liquidity, brand name and prestige of listing in the US. Volatility loomed large on the debut as most Chinese stock markets limit share price gains to 44% during the first five days of trading – but Star has no such limit. This meant that the AVERAGE stock gain across the index was a whopping 140% and, to take one example, Suzhou Harmontronics Automation Technology fell by 30% at market open but finished up 113% on the day. China stocks: Star market to burst (Financial Times, Lex) pointed

to a previous attempt by the Chinese to ape the Nasdaq, called ChiNext, that happened ten years ago. This also had a stellar debut but it is now 60% short of its peak. Although Star will undoubtedly attract a lot of interest, the fact that “proper” companies like Alibaba’s Ant Financial and video app-maker ByteDance haven’t yet joined the party would suggest that it will need to build more credibility before everyone should get properly excited.

Oil tankers/Iran: dire straits (Financial Times, Lex) takes a look at what has happened to the oil price since Iran’s Revolutionary Guard captured the Stena Impero last week – virtually nothing. Spot rates to charter the biggest oil tankers from the Gulf to Asia also remain largely unmoved and the share prices of listed oil tanker companies including Euronav, Frontline and Scorpio Tankers have also been pretty meh – surprising, considering that something like this usually causes a spike in prices (because it reduces the supply of oil, meaning prices rise because of its “scarcity”). US shale production and Opec cuts will affect oil more than ship seizure (Daily Telegraph, Julia Bradshaw) says that longer term oil price movements will depend on how much US and Opec oil producers pump out versus demand. Consensus thinking would suggest that US shale output (which Opec can’t control) will continue to rise and production there will continue to get cheaper due to ongoing technical advances – and that this will easily mitigate any attempts by Opec to restrict supply. Conclusion: Iranian aggression won’t have too much of a long-lasting effect on the oil price unless things really start to escalate.



Equifax settles and ByteDance shifts production due to data breach allegations while Microsoft invests in AI…

Equifax to pay almost $800m in US settlement over data breach (Financial Times, Martin Coulter and Kadhim Shubber) heralds the conclusion of a July 2017 hack that exposed the personal data (including social security numbers, names and DOBs) of over 150m people tracked by the credit reporting agency. The $800m settlement with federal and state authorities – as well as a class action lawsuit – brings this matter to a close and Joseph Simons, chairman of the Federal Trade Commission, summed things up by saying “This settlement requires that the company take steps to improve its data security going forward, and will ensure that consumers harmed by this breach can receive help protecting themselves from identity theft and fraud”. To put this fine into context, Equifax earned $300m in net income in 2018, but its revenues were $3.4bn. * SO WHAT? * It looks like this settlement means that Equifax can now put this whole thing behind them. This was a shocker, though, and the fact that the company gathered information about individuals who may never have dealt with them directly is particularly questionable on a moral basis. Data protection will rightly be a huge area for developments in regulation in the coming years – and I would expect lawyers in particular to earn big fees from this!

Following on from that, ByteDance building India data centre to avert TikTok trouble (Financial Times, Stephanie Findlay) shows that TikTok’s creator is to build a $100m data centre in India in an attempt to appease an increasingly annoyed New Delhi as local lawmakers and lobbyists accuse it of spreading obscene content and sharing user data with the Chinese government. India is ByteDance’s biggest overseas market and it is hoping that this gesture will be taken positively by a government that is currently developing a data protection bill. This investment is part of a $1bn wad of cash that the company has earmarked for spending in India over the next three years. * SO WHAT? * ByteDance is unusual for a Chinese company in that it has a larger user base overseas than it has at home (so surely there is growth potential there! Easy win or what??), so it is pretty sensitive to criticism – hence the efforts being made to make peace. It’ll be interesting to see if ByteDance’s viral 15-second videos continue to be popular – remember what happened to Vine?? I’d say that the company needs to be thinking seriously about its next play otherwise all of the hype could just go up in smoke.

Microsoft invests $1bn in OpenAI effort to replicate human brain (Financial Times, Richard Waters) heralds Microsoft’s move to win the race to full Artificial General Intelligence (AGI), a system that can equal and then surpass humans, to make sure it can be used for “good”. The OpenAI project was started four years ago by the likes of Elon Musk (yes, the one who is a massive critic of AI) and Peter Thiel (Facebook geezer) to stop AI from destroying the human race, but the project has had a reshuffle this year as Musk pulled out to be replaced by LinkedIn founder and venture capitalist Reid Hoffman. * SO WHAT? * It is hoped that Microsoft’s cash injection and access to its Azure computing platform will give it the extra push it needs to coming to fruition. 



Ted Baker climbs, Homebase takes on Bathstore and Sports Direct drops its Debenhams lawsuit…

I referred to weekend rumours of Ted Baker’s founder being interested in taking the company private (i.e. buying it so that it is no longer quoted on the stock market) in yesterday’s Watson’s Daily, and Ted Baker back in fashion with talk of private buyout (The Times, Miles Costello) shows that the shares rose 13.5% in trading yesterday as a result. * SO WHAT? * For all the scandal of Ray Kelvin’s inappropriate behaviour, the fact is that recent performance would imply that he still is very much “Mr Ted Baker” and that the company just can’t run as well without him. Given the current price, even including yesterday’s jump, a buyout could come at a knock-down price versus historical valuations. Plus the company would get back its Ray Kelvin mojo. Cynical though this sounds, I would expect Kelvin and his chums to buy out the company and take a big one-off hit by way of an employee settlement for the inappropriate workplace behaviour allegations in the short term before getting back to “business as usual”.

Elsewhere on the UK high street, Homebase sweeps up after collapse of Bathstore (The Times) highlights Homebase’s acquisition of failed retailer Bathstore. The acquisition includes the website and 44 stores, potentially

saving 150 jobs on the shopfloor and 25 at head office. Homebase, which is controlled by corporate turnaround specialist Hilco, said that it will roll out a number of Bathstore concessions in its stores over the next 18 months or so. * SO WHAT? * Great for those who are saved, but this does smack of the blind leading the blind. Basically, both Homebase and Bathstore desperately need the UK housing market to pick up pronto, but I don’t see that happening at least until we get more clarity on Brexit (and I don’t think we’re going to get that for ages). Homebase’s acquisition of yet another entity that is exposed to this area just puts even more pressure on a DIY/homewares business that is in rapid decline IMHO. The question is whether they will have enough money to wait out the current “storm”.

Then in Sports Direct scraps legal action over Debenhams’ closure plans (Daily Telegraph, LaToya Harding) we see that Mike Ashley’s company has decided to give up on its action against the department store’s recent CVA – but it will be giving money to another landlord (CPC) to continue the action. M&G Real Estate also decided to drop its action after holding “constructive” talks. * SO WHAT? * It sounds like this is looking like a lost cause. If Sports Direct, which had a 30% stake in Debenhams before all this kicked off and is probably THE most incentivised to give this the beans, abandons its challenge I think that others will be put off as well. OK, so it’s still kept some skin in the game by funding someone else, but walking away would imply that it thinks it can’t win.



ABInBev makes a swift disposal and Starbucks gets all technical…

It would seem that brewing giant ABInBev has acted quite quickly following the abandonment of the intended IPO of its Asian business as in Asahi/ABInBev: amber nectar, amber warning (Financial Times, Lex) we see that it has agreed to sell its Aussie beer operations to Japan’s Asahi for an enterprise value of $11.3bn. ABInBev shares rose by 6% on the news but Asahi’s fell by 9%. On the one hand, Asahi needs to get more overseas exposure, but then the Aussie business isn’t going that well as beer drinking in the country has been falling. This would explain Asahi’s weaker share price as investors fret about where the money will come from plus they will be doubtful as to the prospects

for the acquisition itself. * SO WHAT? * It seems to me that ABInBev has come out of this deal better than Asahi as it now has a lump of cash to pay down some of its debt AND it now has a smaller Asian business to sell, which could mean that another crack at an IPO of its Asian business may be easier for investors to swallow.

Starbucks takes stake in tech mobile company Brightloom (Wall Street Journal, Heather Haddon) highlights’s Starbucks’ announcement that it will be investing in – and getting a board seat on – Brightloom, a company founded in 2015 under the “eatsa” name, in order to accelerate its technological capabilities. The company makes automation technology for restaurants. There were no specifics on the terms. * SO WHAT? * Lots of restaurants are trying to up their tech game in order to drive down prices and increase convenience for their customers – this is just the latest one.



And finally, in other news…

I thought I’d leave you today with something very impressive in An optical illusion that seems to be both a circle and a square is baffling the internet – here’s how it works (Insider, Gili Malinsky https://tinyurl.com/y5kaje9c). Very clever!

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Some of today’s market, commodity & currency moves (as at 0837hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq**DAX *CAC-40 *Nikkei **Shanghai **
7,515 (+0.08%)27,172 (+0.07%)2,985 (+0.28%)8,20412,289 (+0.24%)5,567 (+0.26%)21,621 (+0.95%)2,900 (+0.45%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)