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WEEKLY MARKET ROUND-UP – 27/05/19

WEEK ENDING 31 MAY 2019

These little piggies went to market…

As the economic cycle ages, more and more companies are launching themselves at the stock market, but the reception the latest arrivals have received from investors has varied widely.

Trump turns up heat on Huawei and compatriots

Although Huawei wasn’t named directly, Mr Trump’s fifth national emergency since taking office now requires American suppliers to seek licences to trade with foreign telecoms that pose “national security risks”.

The US administration then blacklisted Huawei and the ill-fated Chinese chipmaker ZTE (again) and 70 other Chinese affiliates
by adding their names to its “Entity List”. This
effectively bans the telecom giant from buying parts and components from its 30 US ‘core’ providers including the likes of Intel, Qualcomm, Broadcom, Micron and Xilinx without express US government approval.
Huawei is the global leader in the 5G rollout with more than 40 commercial contracts worldwide, however, it still relies on many US-made components. The news sent share prices among chip and component makers into a brief freefall.

Android Paranoid?

On Monday, Google announced that it would stop licensing its Android mobile operating system (which runs apps like Maps and YouTube) to Huawei, which could sink the 50% or so of its smartphone sales that occur outside China.

The furore that resulted prompted the US Commerce Department to issue a 90-day reprieve for Huawei to buy US components in order to maintain existing networks and provide updates to existing handsets.

Equity markets recovered slightly but Google gave no guidance as to whether Huawei would receive the next version of Android due out later this year.

Huawei claims that it can manufacture many of its own chips going forward and that it has an alternative operating system available.

The latest developments will sorely test such claims while raising the spectre of a technology ‘cold war’ derailing the 5G rollout.

Global dividends surge in first quarter

The struggling airline sector suffered further blows this week, with Air France announcing job cuts and the removal of some routes while Emirates saw its chief commercial officer resign.

Air France plans to cut 465 ground staff jobs and reduce its domestic flights by 15% over the next two years as it comes under pressure from low-cost rivals and high-speed trains. Meanwhile, Emirates confirmed its CCO had resigned, just days after the airline reported a 69% fall in profits.

These follow the collapse of a number of low-cost airlines amid soaring fuel costs and slower consumer demand. This includes India’s Jet Airways, which saw its leadership team including CEO all resign on Tuesday after the airline suspended it operations last month having amassed more than $1bn in debt.

Amazon moves into fast food with Deliveroo

British online delivery firm Deliveroo confirmed that Amazon is set to be the largest investor in its latest $575m fundraising round.

Although the value of Amazon’s investment is unconfirmed, the news that the online giant has thrown its weight behind Deliveroo hit the shares of rival online food delivery names, such as Just Eat, Takeaway.com and Delivery Hero right where they live.

Deliveroo has now raised $1.53bn of capital from a variety of investors including T. Rowe Price and Fidelity Management as it looks to take the fight to competitors such as Uber Eats.

Chief executive and founder, Will Shu, said the money would help Deliveroo grow and offer more choice to customers. Amazon described Deliveroo as an innovative service and said it’s excited about what they do next.

Game of Thrones fan outrage hits Tencent

Chinese media giant Tencent came under fire at the weekend after it postponed the broadcast of the finale of popular TV show Game of Thrones

Tencent Video owns the Chinese online broadcasting rights for the HBO series and was originally scheduled to broadcast the show on Sunday.

However, an hour before it was due to air the company posted a message on social media site Weibo saying the show would be postponed because of “media transfer issues”.

Angry fans reportedly flooded social media with calls for refunds on membership after the delay, with some also suggesting the trade war could be to blame.

While Tencent has reportedly not responded to media requests, shares in parent company Tencent Holdings closed down almost 4% on Monday.

The shares perked up slightly this week after the company announced an end to legal proceedings that had sprung up over who would lead the newly-merged group which also includes major brands like Oakley, Persol, Oliver Peoples and Varilux.

Tension arose in November when Leonardo Del Vecchio, the chairman of the new company appeared to favour Francesco Milleri, the Italian CEO of Luxottica. They escalated again in March. As part of the agreement, neither Milleri nor Vacherot, the respective Italian and French CEOs, will apply for the new role.

“This highlights the importance of not limiting your income search to just one country or region… there are many countries around the world where the domestic market drivers have the potential to underpin continued dividend growth.”

 

Helen Bradshaw, portfolio manager, Quilter Investors.

Chart of the week

Stocking up: China bought a record amount of crude oil last month in an attempt to beat the latest US/Iran sanctions.

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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