14 July 2020
Markets made the news again last week, led by increasing volatility among the prices of technology companies. Since July began, the five leading US technology companies, Apple, Microsoft, Amazon, Facebook and Google have added approximately $470 billion in market value. That is more than the sum of all the values added by other companies in the benchmark S&P 500 Index. Amazon alone added $210 billion in value. However, with great price appreciation comes greater volatility: the technology sector suffered a substantial reversal on Monday, with the NASDAQ Composite Index dropping 4% from peak-to-trough during the day. This was the NASDAQ’s biggest intra-day decline since the year 2000. Electric car manufacturer Tesla was particularly volatile, gaining 12% during the day and subsequently dropping 15%. Like the year 2000, responsibility for the surge in speculation among technology stocks is increasingly being attributed to US retail investors: it was reported last week that 40,000 users of the retail online trading platform Robinhood.com bought shares in Tesla during a single four-hour period. Market makers estimate that retail investors now account for a fifth of stock-market trading and as much as a quarter on the most active days, up from a historic level of about a tenth. One implication is that a significant portion of the stimulus cheques issued by the US government have found their way into the stockmarket, and into technology stocks in particular.
Southern and western US states continued to battle the second wave of the pandemic, with the governor of California ordering statewide closures of restaurants, cinemas, zoos and museums to stop the spread. The restrictions apply to 30 counties, including Los Angeles. Moreover, Los Angeles, home to America’s second-largest school district, and San Diego said they will start the academic year with online classes, in an admission that “the pandemic is not under control”. The reopening of schools has become a focus of economists and politicians, as the necessity for parents to stay at home with young children is increasingly being recognised as one of the main dampeners on economic activity. In New York City, home to the largest school district in the US, in-person classes will be scheduled for most students only two to three days a week. Across the globe, meanwhile, schools in Hong Kong were closed again after a surge in coronavirus cases, prompting the Hong Kong Hang Seng Index to fall as much as 2.3%. On Thursday, Hong Kong reported the most locally transmitted cases in a single day since the pandemic began.
The “cold” war between the US and China intensified with a warning by the US State Department to Americans in China to exercise increased caution due to “arbitrary law enforcement”. In other actions, the US government accelerated legislation requiring companies that provide the US government with goods and services to certify that they do not use Huawei equipment or products from other controversial Chinese groups. The Trump administration also announced plans to scrap a 2013 agreement between U.S. and Chinese auditing authorities, after its failure to provide the promised access to Chinese companies’ audit documents. China, meanwhile, said it would impose sanctions on US defence manufacturer Lockheed Martin. Ironically, it emerged that American-based affiliates of Chinese companies, including at least one firm with ties to the Chinese military, received millions of dollars in loans from the federal program aimed at keeping small businesses afloat during the global pandemic.
SoftBank Group Corp, the Japanese multinational conglomerate, is exploring options which include a full or partial sale or public offering of British chip designer Arm Holdings. These plans come as SoftBank has said it plans to sell up to $41 billion in assets to help its struggling portfolio and to buy back its own shares which are trading at a big discount relative to net asset value. SoftBank bought Arm Holdings, which designs microprocessors that power most of the world’s smartphones, for $32 billion four years ago and was SoftBank’s largest-ever acquisition at the time.
On Monday semiconductor maker Analog Devices announced that it plans a $20 billion plus deal to buy rival Maxim Integrated Products Inc. The all-stock deal would be one of the largest merger deals of the year and create a combined company valued at around $68 billion. Both companies are big players in analog semiconductors, which are used in areas such as power management for automotive batteries, and the combined company would create a more robust competitor to Texas Instruments Inc. – the leader in analog semiconductors. The semiconductor industry has seen a flurry of activity as chip makers seek to expand and scale their product portfolios.
The United States Air Force has placed an order with Boeing for eight Boeing F-15EX fighters as part of deal worth up to $23 billion. Valued at nearly $1.2 billion the initial delivery of eight fighters provides a significant boost to Boeing’s defence activities, as its commercial aircraft business struggles during the coronavirus-induced downturn. The deal also includes the delivery of 12 F-15EXs in FY 2021 and plans for 64 jets during FY 2022-25, eventually totalling as many as 144 aircraft.
Ocado Group, the British online supermarket, announced a 27% jump in sales over the past six months after seeing unprecedented demand for online grocery shopping in the UK. Tim Steiner, Chief Executive Officer (CEO) of Ocado Group, said “The world as we know it has changed. As a result of COVID-19 we have seen years of growth in the online grocery market condensed into a matter of months; and we won’t be going back”. Despite the increased revenues, Group EBITDA was down 36% to £19.8 million reflecting increased costs from investment in the International Solutions business. Loss before tax of £40.6 million also reflects this investment.
This publication is intended to be Walker Crips Investment Management’s own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this document constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange. Registered office: Old Change House, 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England number 4774117.
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