See more about Equities
Research driven, high conviction investing giving clients access to our best equity ideas worldwide
This week we saw further trade-tariff tit-for-tat. Meanwhile, Bayer was handed a hefty bill and Vodafone shareholders counted the cost of 5G.
New economic data from China showed a deterioration. Industrial output, retail sales and fixed-asset investment for April were all below forecasts and weaker than March’s figures. It’s likely the Chinese authorities will respond with further stimulus measures and monetary support, particularly as higher US trade tariffs have still to take effect.
On that note, China retaliated by ramping up its own tariffs on $60 billion of US imports. Meanwhile, on grounds of national security, President Trump this week signed an executive order banning US firms from buying telecoms equipment from Huawei and ZTE, and from selling them US technology. Market volatility spiked in response. However, investors are still failing to price in any escalation of the issue.
Most of us have made purchases we’ve later regretted – but hopefully, on a smaller scale than Bayer. The German pharmaceuticals giant fought long and hard to acquire US chemicals business Monsanto, eventually sealing the deal in 2016 for US$66 billion.
Now the acquisition is shaping up to become one of corporate history’s most disastrous, as damages linked to Monsanto’s weedkiller Roundup start to mount.
This week, a jury in California awarded over US$2billion to a couple who claimed Roundup caused their cancer. The magnitude of the award portends the massive bill Bayer could eventually owe, with over 13,400 plaintiffs poised to bring similar lawsuits in the US alone. Bayer will appeal the ruling, as it has done in two previous cases.
Bayer’s shareholders are squaring up for a confrontation with management. Their anger appears justified. Bayer’s share price has lost over 45% in the past year.
The US S&P 500 Index returned -0.2% over the week to Thursday’s close.
Vodafone did something every income investor feared, and cut its dividend – by a hefty 40%. Some analysts seemed sympathetic to the view that Vodafone’s management can find better uses for cash than returning it to shareholders. Indeed, there have been loud calls for increased capital investment or balance sheet bolstering, in preference to dividends or buybacks. Vodafone is doing both: investing in its 5G network and raising $2.2billion through the sale of its New Zealand operations. Nevertheless, over the week to Thursday’s close, Vodafone shares dropped 10.2%.
This week, we saw a heartening case of employee loyalty being rewarded.
Julian Richer, owner of UK hi-fi and TV chain Richer Sounds, announced he was handing control of the business to the firm’s 531 employees. Most of the staff will also receive cash bonuses of £1,000 for each year of service to thank them for their loyalty and hard work.
Richer Sounds is one of the UK’s largest firms to embrace employee ownership. Others include high-street retailer John Lewis and animation studio Aardman, producer of Wallace and Gromit.
The FTSE All-Share Index rose 1.8% over the week to the close on Thursday.
Germany’s sputtering economy returned to growth during the first three months of 2019, thanks to a pick-up in construction and consumer spending. However, manufacturing remained in the doldrums and the government cautioned that the economy is vulnerable to trade disputes. The US and China are vital markets for German exporters, and the tariffs are undermining their businesses too.
Germany is Europe’s largest economy and historically has been the region’s primary engine of growth. Given that the country narrowly avoided recession during the last three months of 2018, the figures have been greeted with relief. Not least by the European Central Bank, which will now feel less pressure to provide monetary support to combat slowing global growth.
The FTSE World Europe ex UK Index ended 1.6% higher over the week to Thursday’s close.
In a ploy aimed at pulling the wool over the authorities’ eyes, a French primary school enrolled some local sheep to swell student numbers. The school in the village of Crêts-en-Belledonne at the foot of the Alps, was threatened with class closures as class sizes steadily dwindled.
Lambasting the education department, parents and teachers appealed for the school to remain open. However, officials argued that, while they lamb-ented the situation, student numbers had fallen below the stipulated minimum.
The mayor responded by calling upon a local herder, who brought his flock of sheep to the school. Fifteen of the brightest sheep were registered after showing their birth certificates and, in two shakes of a lamb’s tail, class numbers were back on target.
But it’s still unclear whether education officials will baaaahr the new joiners from taking up their places in class.