CITY 4524 August 2019 THE WEEKGlobal markets continued their rocky
ride, amid rising tensions in Hong Kong,
continued US/China trade fears, weak
German GDP data and “a flippedyield
curve”onUStwo-year and ten-year
bonds. The yield on 30-year US bonds
fell below 2% for the first time in history.
The US president lambasted the Fed
chairman,Jerome Powell,for his
“horrendous lack of vision”. Argentina’s
economy minister,Nicolás Dujovne,
resigned after presiding overa20%
crash of the peso against the dollar.
In Britain, sentiment was affected by
the leaked Operation Yellowhammer
no-deal Brexit dossier: analysts fear
a“wildly volatile” September and
October forthe pound.The tech
industry, however, has bucked
uncertainty. According to government
figures, UK tech firms securedarecord
£5.5bn in foreign investment in the
first seven months of 2019–outpacing
the US onaper capita basis. Overall,
however,foreign direct investmenthit
asix-year low in June.
Applefired the first blast inanew
round of the “streaming wars” –
announcing it had committed more
than $6bn to programming in an effort
to catch up with Netflix, Disney and
HBO.WeWork,the office-sharing group,
unveiled its flotation prospectus (see
page 47). The pay of FTSE 100 bosses
was reported to have fallen to its lowest
level in five years, thanks to investor
revolts–medianpay packageshave
slipped from £4m to £3.4m.Cathay Pacific:drop the pilot
Followingaweek of pressure from China over staff participation in Hong Kong protests,
the territory’s flagship airline has abruptly “replaced” its CEO, said Sue-Lin Wong and
Hudson Lockett in the FT. What has particularly shocked local market analysts is the
way the resignation of Rupert Hogg,a33-year veteran of Cathay’s largest shareholder,
Swire, was handled. The management change “was first revealed by mainland Chinese
state-run media” rather than Cathay itself–“an unprecedented development foraHong
Kong private sector company” and, as many see it, an ominous development. Hogg’s
replacement is Augustus Tang, who currently heads another Swire Pacific subsidiary, the
Hong Kong Aircraft Engineering Co, and is presumably in favour on the mainland.
Indeed, if Hogg’s head was the price required to keep Beijing sweet, the “sacrifice seems
to have worked”–for now, said Patrick Hosking in The Times. “Cathay’s shares, which
had been nosediving, have since bounced.” Global companies contemplating China’s vast
market understandably feel they cannot afford to be “too squeamish”. But kowtowing to
Beijing seems to be the new default position. “All this corporate grovelling makes one
wonder whether there might beagrain of truth in the conspiracy theory surrounding the
surprise sacking” of HSBC boss John Flint last month. He’d “annoyed China” too.
Wrightbus:wrong bus
The Northern Ireland-based maker of the London “Boris bus”–anupdate to the classic
Routemaster–has sent out an “SOS call” inarace against time “to secure eitheranew
owner or fresh funding”, said Oliver Gill in The Daily Telegraph. At Wrightbus, a
73-year-old company based in the Democratic Unionist Party stronghold of Ballymena,
around 1,400 jobs are on the line: bad timing for Boris Johnson, whose government –
and of course his own job–isever more reliant on support from DUP politicians. The
PM’s personal association with Wrightbus dates back to his time as mayor of London,
when he commissioned the company to make the vehicle. Between 2012 and 2017 it
built 1,000 of them. But then the new mayor, Sadiq Khan, “halted orders” in favour of
“cheaper and greener” rival models. The hope now is that Chinese cash will save the
“stricken” bus-maker from its current “solvency predicament”, said Robert Lea in The
Times. BYD–agiant Chinese automaker, part-owned by Warren Buffett’s Berkshire
Hathaway–has been lined up asapotential suitor. “Conservative industrial strategy is
determinedly not about picking winners. But what’s the policy on saving losers?”
Estée Lauder: sitting pretty
“The US bond market may have started to exhibit age spots”, and global growth shows
signs of wear, but tell that to “Asia’s legion of skincare devotees”, said Lex in the FT.
Their “seemingly insatiable demand for pricey toners, face masks and creams has plumped
up Estée Lauder’s latest results”: sales jumped 9% in the last quarter. Cosmetics are often
seen asarecession-proof business: consumers who put off big-ticket purchases inadown-
turn still treat themselves toa$25 lipstick or even $350 face creams. “But not all beauty
companies are created equal.” While Estée Lauder and its French rival, L’Oréal, have the
financial muscle to develop new products, build digital strategies and fund acquisitions,
others have struggled. “Revlon,amass-market staple, is putting itself up for sale.”
British Steel: a£70m piece of Turkish delight?At last, there’s some good news for
industrial Britain. Afteraprotracted search
for asaviour, the future of British Steel
appears to have been secured–and with it,
more than 4,000 jobs at its Scunthorpe and
Teesside plants. The prospective buyer –
the Turkish pension fund Oyak–was
chosen above several other bidders,
including British-based Liberty, noted Tom
Witherow and Ruth Sunderland in the Daily
Mail. Oyak–also known as the Turkish
Armed Forces Assistance Fund–already
owns steel mills in Turkey, and is believed to be offering around
£70m for the business, which went into liquidation in May, plus
“a promise to invest £900m to double production”.There’s no shortage of cash or clout here, said The Guardian.
With £15bn in assets, Oyak presides over “a sprawling empire”
that ranges from carmaking to energy and finance. And the
unions have given the dealacautious welcome. However, someMPs are troubled by Oyak’s reported ties
with President Erdogan’s “autocratic
regime” and the Turkish army: Oyak’s
chairman, Mehmet Tas, isaformer army
general. The chairman of the Commons
Defence Committee, Dr Julian Lewis, has
been at pains to stress the strategic
importance of keeping an industry “with a
strong defence dimension” in British hands.And all the more so, possibly, given the
potential cost of this deal to the taxpayer,
said Alistair Osborne in The Times. Precise details aren’t available
yet, but there’s unconfirmed talk that it hinges “ona£300m
support package from the Government”. No one begrudges the
steelworkers their rescue, but that’salot of cash “forapolluting
heavy industry in decline”–and currently “embroiled”, unhelp-
fully, in Brexit and US-Sino trade wars. “Thousands of redundant
shopworkers, bookie staff and banking employees might wonder
why the Government thinks steelworkers are better than them.”Is the future bright for British Steel?Seven days in the
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