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WEEKLY MARKET ROUND-UP – 13/05/19

WEEK ENDING 19 MAY 2019

The race so far…

The first four months of 2019 have seen some outstanding performances with US equities clearly forging ahead. But will a new leader emerge in the remaining months of the year?

BMW profits hit by collusion allegations

German carmaker BMW reported a 78% fall in operating profits in the first three months of 2019, as it set aside €1.4bn (£1.2bn) to cover a potential fine by EU regulators.

The business issued a profit warning last month saying it faced potentially significant fines from an investigation by the EU Commission into collusion between German carmakers regarding emissions filtering technology. The €1.4bn provision has been set aside to cover ‘probable’ penalties but BMW emphasised it would continue to contest the allegations.

The potential fine, combined with weaker car sales, meant BMW’s core automotive unit reported a pre-tax loss for the first time since 2009, which pushed the share price lower.

AB InBev looks to Asia IPO

The world’s largest brewer, Anheuser-Busch InBev (AB InBev), is considering listing a minority stake in its Asian operations.

The Belgium-based company said the advantages of a Hong Kong listing would be to create a champion in the Asia-Pacific region where sales are still growing, and could provide a platform for potential M&A activity in the region.

Currently, AB InBev’s Asia-Pacific region, which includes China and Australia, makes up 14% of underlying operating profit. The company’s CFO suggested a parallel could be drawn with Brazilian subsidiary AmBev, of which AB InBev owns 61.9%.

A listing could value the Asia-Pacific division at more than $60bn, which would reduce the $100bn debt pile that came with its 2016 acquisition of SABMiller.

Trump’s trade tweets tank equity markets

President Trump derailed global stock markets when he tweeted the US would increase its Chinese trade tariffs this Friday. The news sent Wall Street spiralling, triggering a $500bn sell-off in Chinese stocks.

As Quilter Investors portfolio manager Helen Bradshaw opines, “This is typical Trump brinkmanship. The president is no doubt emboldened by the recent jump in US GDP but his threat to increase the current 10% tariff to 25% and to add tariffs to the remaining $325bn of Chinese imports has cast a deep shadow over this week’s trade talks.

“This is a rude awakening for equity markets that have been lulled by the assumption that both sides were close to settling their differences. It’s now highly unlikely that they’ll come to terms this week.”

One step Beyond…

The first listing of an alternative meat producer was gobbled up by investors last Thursday when the US company Beyond Meat saw it shares gain 163% in their IPO. This was the biggest market debut since 2008 and pushed the company’s valuation to $3.8bn.

The IPO was well timed with appetite for alternative protein booming. In the US, sales of plant-based meats have jumped over 40% in the last three years while UK sales have climbed 18% in the last year.

Although the brand is bolstered by celebrity investors like Bill Gates and Leonardo DiCaprio it has yet to make a profit and faces stiff competition from the likes of Impossible Foods (architect of the Impossible Whopper), Tyson Foods (the meat packing giant) and Light life, while titans such as Kellogg, Conagra and Kraft Heinz are also expected to step up.

Uber IPO undermined by driver strikes

The long-awaited listing of ride-sharing company Uber Technologies was overshadowed by drivers in both the US and UK striking over allegations of low pay.

Uber’s IPO was expected to be valued at as much as $90bn at its listing on Friday (10 May), but despite promises to treat drivers better it has said that classifying drivers as employees rather than contractors would negatively affect its business.

In protest, drivers in London, Birmingham, Nottingham and Glasgow and in a number of US cities including New York, San Francisco and Los Angeles boycotted the Uber app, calling for a cut in Uber’s commission, increased fares and improved job security.

Uber said it would continue working to “improve the experience for and with drivers”.

This is a rude awakening for equity markets that have been lulled by the assumption that both sides were close to settling their differences. It’s now highly unlikely that they’ll come to terms this week.

 

Helen Bradshaw, portfolio manager, Quilter Investors.

Chart of the week

Look on the bright side: The falling cost of renewable energy technologies is driving further
investment. The price of solar panels dropped 76% between 2009 and 2017, while wind turbine
costs fell 34%, making them more competitive alternatives to fossil fuels.

If any article in this market update has an effect on your finances and you would like professional advice, then please get in touch.

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