Wednesday 30/01/19

  1. In REAL ESTATE NEWS, Chinese sell out of US property and Crest Nicholson suffers with London
  2. In TECH NEWS, Apple disappoints and a new tax crackdown looms for big tech
  3. In INDIVIDUAL COMPANY NEWS, PG&E’s bankruptcy sets it up for an overhaul, Norwegian drops 30%, Harley-Davidson gets a tariff-sized dent and Mike Ashley goes shopping again – this time for
  4. In OTHER NEWS, I bring you a very expensive and smelly fruit. For more details, read on…



So Chinese cool on US real estate and Crest Nicholson experiences a London drag…

Chinese exiting US real estate as Beijing directs money back to shore up economy (Wall Street Journal, Esther Fung) cites research from Real Capital Analytics which shows that Chinese net purchases of US commercial real estate in 2018 fell to their lowest level since 2012 as Beijing continued to pressure Chinese investors to repatriate cash. Altogether, they were net sellers of $854m of US commercial property in the fourth quarter, which marks the third consecutive quarter where they sold more US property than they bought. It’s not limited to commercial property either as the number of Chinese homebuyers fell by 4% between April 2017 and March 2018 versus the same quarter in the previous year with economists blaming it on higher prices, a stronger dollar and US-China trade tensions. * SO WHAT? * This is quite a turnaround as Chinese investors have been chucking their money about and forking out for prime assets for the last five years after Beijing relaxed restrictions on foreign investment. However, the pendulum swung too far the other way with Chinese 

investors taking vast amounts of money out of the country to make more stable returns in the US property market and now the government is now trying to crimp the outflow of money in order to stabilise its currency, reduce debt and arrest the economic slowdown. It’s just another example of how the economic slowdown in China is having knock-on effects elsewhere.

Meanwhile, back at home, London slowdown hits Crest Nicholson (Daily Telegraph, Jack Torrance) shows a subdued housebuilder that has suffered versus some of its competitors due to its weighting in high-priced homes in London and the South East. Profits fell by 15% in the year to October although sales were actually up by 3% and revenues by 9%. Chief exec Patrick Bergin said that he expected demand to be depressed until there was more clarity over Brexit. * SO WHAT? * Crest Nicholson’s sluggish performance contrasts with other builders who have reported record profits in recent months but this is due to its greater focus on London and the South East – where the market has been weaker – and the fact that it builds a higher percentage of homes worth more than £600,000, meaning that it can’t get that bump from the government’s Help To Buy scheme. The company’s shares were up by 6% in afternoon trading as cash flow was better than expected and the dividend held steady.



Apple shows a drop in revenues and tax rumblings are getting louder for Big Tech…

In Apple shares rise despite first fall in revenue for a decade (The Times, James Dean) we see that Apple reported a fall in first quarter profit and sales for the first time in over ten years. This came shortly after Apple cut its quarterly sales forecast for the first time in 16 years earlier this month. Revenues from China fell by almost 27% in the three months to December 29th but only fell slightly in Europe and Japan whilst they actually rose in the Americas. On a slightly more positive note, Apple and Aetna team up on new healthcare app (Financial Times, Tim Bradshaw and Oliver Ralph) heralds an interesting tie-up with US insurer Aetna that will give the company access to a massive amount of health data in a new app for the Apple Watch. It’ll be called Attain and is set to launch in the next few months. Basically, it will track and reward healthy behaviours as well as giving users personalised notifications like nudges to take their medication or to get jabs. Chief exec Tim Cook has identified healthcare as a key area for Apple and this latest development is clearly a step in that direction. * SO WHAT? * The first quarter is seen to be the company’s most important quarter because 

it includes the holiday season and so poor numbers at this point are not ideal. However, we all know that the smartphone replacement cycle is getting ever-longer as handsets have become more expensive to buy and there’s less of an incentive to replace given that new models only show very incremental improvements these days. iPhones still make up 60% of Apple’s revenues and so it seems to me that we are entering a transition period where the company tries to move towards providing more and better quality services to its user base – as evidenced by this new healthcare app – and away from the emphasis on hardware. Services are going in the right direction, but at the moment they are not strong enough to eclipse the importance of handset sales.

I thought I’d mention Global tax crackdown on tech giants (The Times, Philip Aldrick) because I expect that this is going to be one of those GDPR-type stories that bore everyone to death but that are actually quite important. The Organisation for Economic Cooperation and Development (OECD) is about to review the fundamentals of tax law in order to “address the tax challenges of the digitalisation of the economy” and end years of tax jiggery-pokery by big tech companies and other multinationals. * SO WHAT? * This is set to be the biggest fundamental reform of global tax in generations and the OECD is to come up with a plan and a report by June and will aim to agree principles by October next year. Set those alarm clocks and write it in red on your wall calendars. This is going to be one wild ride.



PG&E’s bankruptcy might herald a new beginning, Norwegian experiences turbulence, Harley-Davidson gets trumped and Mike Ashley goes shopping…

Wildfires drove PG&E to bankruptcy, where utility must change to survive (Wall Street Journal, Russell Gold and Katherine Blunt) highlights the fact that the troubled utility yesterday became the biggest public company to go bankrupt in the US for ten years – and America’s sixth biggest bankruptcy ever – as growing liabilities for its part in triggering California wildfires via its power lines pushed it over the edge. * SO WHAT? * The company has, until now, enjoyed a monopoly in power supply as it provided electricity and gas to 16 million Californians but its identity is likely to change drastically following its Chapter 11 filing. Potential outcomes include breaking up the company, selling off its natural gas business and/or some of its more than 100 hydroelectric dams. The company itself wants to end hundreds of long-term power contracts with wind farms and solar farms, which could have a knock-on effect to renewable energy companies.

Norwegian nosedives 30pc over rights issue (Daily Telegraph, Alan Tovey) heralds a massive share price drop for struggling airline Norwegian Air Shuttle as it announced an emergency fund raising to stop it breaching debt covenants. This happened only one week after British Airways owner IAG decided to sell its 4% stake as it abandoned a takeover bid. Norwegian is Europe’s third-

-largest low-cost carrier and has been struggling due to ticket pricing pressure, overcapacity and over-ambitious expansion.

Trump’s trade war slams brakes on Harley-Davidson (Daily Telegraph, Alan Tovey) shows more evidence of the fallout from Trump’s trade tariffs as the company announced annual results yesterday with motorbike deliveries falling by 5.3% over the year. Domestic demand fell by 10%, which is a concern given that the US is the company’s biggest market accounting for more than 50% of demand. Any profits were wiped out in the final quarter by the impact of new trade tariffs but execs said that tariff impact would be eliminated in 2020 once the ongoing work to its Thailand production plant is completed.

Ashley targets sofa retailer as next addition to his empire (The Guardian, Zoe Wood) shows that Mike Ashley is embarking on yet another shopping trip – this time in the form of a purchase of online sofa specialist which was put up for auction by current owner LGT European Capital. Ashley’s shopping trips are enough to make your head spin as last year alone he snapped up House of Fraser and Evans Cycles – and he’s currently in talks to buy HMV. He is up against sofa retailer ScS Group in the final round of bidding, so it’s not yet done and dusted. * SO WHAT? * We don’t know what the price is going to be, but you would have thought would go cheap given that so many other furniture companies have had such a rough ride. Their fortunes are very much tied to the direction of the housing market (and economic sentiment) and given that this has been a mixed picture for a while, you can understand consumer reticence in buying big ticket items such as sofas.



And finally, in other news…

I thought I’d leave you today with Smelly fruit on sale in Indonesia for three times average monthly wage (Sky News, £750 for one durian fruit is hefty price for anyone!

Some of today’s market, commodity & currency moves (as at 0815hrs 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 **
6,834 (+1.29%)24,580 (+0.21%)2,640 (-0.15%)7,02811,219 (+0.08%)4,928 (+0.81%)20,557 (-0.52%)2,576 (-0.72%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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