Live Markets: Huawei disruption to exacerbate smartphone downturn

LG Innotek Co

23/05/2019 10:24

* STOXX 600 down 0.7% in broad risk-off sell-off
    * Trade tensions continue to rattle
    * Merlin Entertainment rallies on push to go private

    May 23 - Welcome to the home for real-time coverage of European equity markets brought to
you by Reuters stocks reporters and anchored today by Josephine Mason. Reach her on Messenger to
share your thoughts on market moves: josephine.mason.thomsonreuters.com@reuters.net  
    
    HUAWEI DISRUPTION TO EXACERBATE SMARTPHONE DOWNTURN (0924 GMT)
    The deepening rift between the U.S. and China over trade and technology is driving markets
lower today. The new turn the trade war is taking, towards a focus on technologies with the U.S.
barring Huawei and many component makers cutting their ties with the Chinese smartphone firm, is
making investors especially worried we're in this for the long haul. 
    These tech tensions are putting added pressure on an already-weak market.
    UBS' survey of 8,000 smart-phone owners across six key countries finds longer device
lifetimes are hurting consumers' desire to buy new products. Purchase intent in most regions is
stable or weaker year-on-year, and on average next 12-month purchase intent has fallen from 42%
to 41% year-on-year (see UBS' chart below).
    "Given the overall weak outlook for the market and combining this with the disruption faced
by Huawei, we believe that the current smart-phone downturn could elongate and cut our unit
growth forecasts to -7%/+1% YoY  for '19/'20E from -5%/+1%," they write. 
    "Our best educated guess is that Huawei has 3-4 months of inventory but we struggle to see
alternative supply for some critical components... that could pose a risk to Huawei's abilities
to produce smart-phones," they say.
    UBS analysts' most preferred plays are Apple, LG Innotek, MediaTek, Murata, Taiyo Yuden, and
TSMC, while they recommend investors avoid BYD Electronics, Chipbond Technology, Fingerprint
Cards, Hon Hai, Pegatron, Sharp, SK Hynix, SMIC, Texas Instruments, Wistron, and Zhen Ding
Technology. 
 
 
    (Helen Reid)
    *****
    
    OPENING SNAPSHOT: CARS, TECH DRIVE MARKETS LOWER (0725 GMT)  
    Cars and tech are driving European stocks lower in early deals as trade tensions continue to
hurt sentiment, with little other macro news to drive direction or soothe investor nerves. 
Major bourses are down between 0.6-0.9%.
    A number of heavyweight stocks going ex-div are also dragging - Daimler is down 7.2% and
bottom of the DAX and Commerzbank is off 4.6%.
    But otherwise it's risk-off. The car and auto suppliers index  .SXAP  has hit December lows
and the tech index  SX8P  is down 1.2%. News that Panasonic is complying with the U.S. blockade
of Huawei has further rattled investors about the shock to complex global supply chains and
potential loss of business from the world's No. 2 smartphone maker.
    Merlin Entertainments is a standout gainer, up 4.7% after an activist shareholder called for
the company to go private.    
 
 
    (Josephine Mason)
    *****       
    
    ON OUR RADAR: TECH AND TRADE, PFEIFFER VACUUM AND MERLIN (0658 GMT)
    European stock futures are pointing to heavy losses at the open as worries about a
protracted, complex dispute between Beijing and Washington forces investors out of risky assets.
    The trade-sensitive DAX is down the most, while FTSE 100 is off 0.6% as concerns about
damage to the economy from the deepening political crisis and trade tensions offset the benefit
of the weaker sterling on its multinational constituents. 
    The growing list of companies complying with the U.S. blockade of Huawei is likely adding to
concerns about the impact on tech supply chains.
    Aside from a slew of ex-divs that will keep stocks under pressure from Imperial Brands to
Daimler and Commerzbank, there's some earnings and dealmaking to drive individual moves.
    Pfeiffer Vacuum shares are down 5% in pre-market trading after the industrial vacuum firm
gave a weak full-year guidance for sales and margin and Tate & Lyle is seen falling after
reporting lower FY profits and forecasting flat growth for 2020. 
    Shares in Merlin Entertainments, the owner of Madame Tussauds, are expected to get a boost
after activist investor ValueAct urged the company to go private, and WPP is seen higher after
private equity fund Vista Equity emerged as one of four U.S. bidders vying for a majority stake
in its data analytics firm Kantar. 
    (Josephine Mason)
    *****       
    
    MAY DAY FOR MARKETS? (0636 GMT)
    Our earlier blog highlighted UK Prime Theresa May's troubles, but if futures are anything to
go by, it looks like stocks are in for a tough session as investors continue to shun risky
assets rattled by the rising tensions between China and the U.S. All the major European stock
futures are down 0.7-0.8%.      
 
 
    One dealer said growing tensions between the U.S. and Iran are adding to the risk-off
sentiment.  urn:newsml:reuters.com:*:nL2N22Z009
    But the trade spat is ever present in investors' minds, with the possible blockade of two
companies - Huawei and Hikvision - raising worries that Trump is targeting China's tech
ambitions, leading to a much more complicated and protracted spat with China than one centred on
securing a trade deal.  urn:newsml:reuters.com:*:nL2N22Y0U5
    The list of companies severing ties with Huawei is growing as companies aim to comply with
the U.S. blockade of the company, hurting the world's No.2 smartphone maker: British chip
designer ARM owned by SoftBank and Panasonic overnight.
    In upbeat news that may get overshadowed by macro issues, China's Lenovo Group, the world's
top personal computer maker, has reported better-than-expected profits, a sign of decent demand
in the world's No. 2 economy.
    Otherwise it's relatively quiet on the corporate front except for the UK - there's a slew of
ex-divs today which will also pressure heavyweight stocks from Imperial Brands to Daimler and
Commerzbank in Germany.
    UK early-years retailer Mothercare has delayed its full-year results by a day to Friday,
citing complexity due to UK and group restructuring, and United Utilities is the latest UK
utility to warn about the possibility of renationalisation.
    BAT may be under pressure on news Brazil is suing the company Philip Morris, in a landmark
case aimed at recovering the public health treatment costs of tobacco-related diseases over the
last five years.
    There's a bit of dealmaking: activist investor ValueAct is urging Merlin Entertainments, the
owner of Madame Tussauds, to go private, and private equity fund Vista Equity has emerged as one
of four U.S. bidders vying for a majority stake in WPP's data analytics firm Kantar. WPP's
U.S.-listed shares were higher overnight on the news. 
    Elsewhere, more positive signs that Italy's banks are making headway with their efforts to
get rid of their mountains of bad loans. UniCredit planning to sell up to $5.6 bln of soured
loans, according to a Bloomberg report and Intesa Sanpaolo plans to offload only up to 50% of a
10 billion euro portfolio of so-called "unlikely-to-pay" (UTP) loans.
    Other headlines this morning:
    Vista Equity Partners lines up binding bid for Kantar - sources  urn:newsml:reuters.com:*:nL5N22Y55I
    Deutsche Bank investors meet amid questions on strategy, leadership  urn:newsml:reuters.com:*:nL5N22Z0GH
    ARM supply halt deals fresh blow to Chinese tech giant Huawei  urn:newsml:reuters.com:*:nL5N22Y35E
    Novartis has 25 blockbusters in the pipeline - CEO  urn:newsml:reuters.com:*:nFWN22Z003
    Activist investor urges Madame Tussauds-owner Merlin to go private - FT  urn:newsml:reuters.com:*:nL4N22Z16D
    U.S. judge appoints Ken Feinberg mediator for Bayer Roundup settlement talks  urn:newsml:reuters.com:*:nL2N22Y125
    AB InBev expects total investment of up to $400 mln in Nigerian brewery  urn:newsml:reuters.com:*:nL5N22Y623
    In landmark case, Brazil sues top tobacco firms to recover public health costs  urn:newsml:reuters.com:*:nL2N22Y12X
    Judge rules against Trump, paves way for banks to provide his business records to Congress
 urn:newsml:reuters.com:*:nL2N22Y0VY
    Nestle and Fonterra mull sale of dairy joint venture in Brazil  urn:newsml:reuters.com:*:nL5N22Z0KR
    Philip Green's Arcadia to close UK stores, review U.S. in restructuring  urn:newsml:reuters.com:*:nL5N22Y5XW
    Intesa to sell up to 5 bln euros in UTP loans to Prelios-sources  urn:newsml:reuters.com:*:nL5N22Y5YF
    (Josephine Mason)
    *****

    MAY DAY (0544 GMT)   
    Headline-watching over the U.S.-China trade spat are dominating most stock markets, but all
eyes may be on Number 10 again today as pressure on Theresa May to resign mounts and the Brexit
crisis deepens after the resignation last night of prominent Brexit supporter Andrea Leadsom
from the PM's government.  urn:newsml:reuters.com:*:nL5N22Y17P
    It's particularly galling for May as Britons head to the poll for the European elections,
where the ruling Conservative party are tipped for a big defeat.
    Stocks sensitive to the UK economy and sterling like housebuilders, RBS and retailers, got
battered yesterday underscoring how quickly investors punished these sectors on big Brexit days,
although the dominant multi nationals helped lift the broader FTSE 100 index in positive
territory despite a brief wobble in the afternoon. 
    Sterling  GBP=  is under pressure this morning, lingering near 4-month lows hit yesterday,
but financial spreadbetters IG are calling the FTSE to open 27 points lower at 7,307, suggesting
worries about damage to the world's No. 5 economy as the political turmoil and the global trade
tensions continue may offset the falling pound.
    Other European bourses are taking their cues from overnight Asia where stocks hit 4-month
lows on lingering trade concerns and the Fed minutes: Frankfurt's DAX is expected to open 62
points lower at 12,106 and Paris' CAC to open 21 points lower at 5,358, according to IG.
    We've also got German, French and euro-zone flash PMI and Germany's investor/business Ifo
confidence indicator later in the morning for a glimpse into the health of the EZ economy.
    "Investors will be paying close attention to the German manufacturing update seeing as it
has been in contraction territory throughout 2019 and the contraction is deepening. The decision
by President Trump to delay imposing tariffs on EU cars for up to six months should take some
pressure off the German car manufacturing sector," says David Madden, market analyst at CMC
Markets UK. 
    
    
    
    (Josephine Mason)
    *****    


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FTSE    https://tmsnrt.rs/2ErQhxw
Futures    https://tmsnrt.rs/2EreuUu
INDICES    https://tmsnrt.rs/2HxuHJU
UBS chart on smartphones    https://tmsnrt.rs/2Eqn99Q
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 (Reporting by Danilo Masoni, Helen Reid, Josephine Mason and Thyagaraju Adinarayan)