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China data lift FTSE despite HSBC profit plunge & TikTok tensions

3 August 2020

FTSE 100 bounces back into black after good Chinese economic data offset profits plunge at HSBC bank and US-China tensions over social media app TikTok.

(Update) The FTSE 100 bounced back into the black after good Chinese economic data offset a 65% profits plunge at HSBC (HSBA) bank and tensions between the US and China over social media app TikTok.

After an early 39 point, or 0.6%, the blue chip index changed course to advance 76 points or 1.3% to 5,974.

Pre-tax profits at the UK’s biggest bank tumbled 65% to $4.3bn in the first six months of the year, and it set aside another $3.8bn to cover bad debts and warned it may need to make provisions for as much as $13bn of defaults this year as individuals and companies feel the strain from Covid-19. HSBC shares dropped 4.7%, or 16p, to 325p.

Richard Hunter, head of markets at Interactive Investor said the bank faced the additional issue of the ‘tense political situation in and around Hong Kong and the deteriorating relations between the US and China’ which were putting a strain on its operations in Asia. ‘The immediate outlook is bleak,’ he said.

Rolls-Royce (RR) fell to the bottom of the FTSE 100, down 6.7%, or 15p, at 215p on reports it may raise $1.9bn in a rights offering. British Airways owner International Consolidated Airlines (IAG) fell 4.5%, or 7p, to 157p. 

Stocks were feeling the strain not only of a spike in coronavirus infections around the world, including a state of disaster being declared in Victoria in Australia and the UK imposing its own local lockdowns, but of worsening relations between China and the US.

The latest drama between the superpowers centres around video-sharing app TikTok, which is owned by Chinese company ByteDance. 

Donald Trump has threatened to ban the app, which has more than half a billion users, as he believes its Chinese ownership is a threat to national security. Microsoft (MSFT) is currently in talks with ByteDance to buy the US operation.

The escalation between the US and China overshadowed the encouraging manufacturing data from China that points to momentum in the economic recovery.

China’s purchasing managers’ index (PMI) showed factory activity expanded at the fastest rate in nearly a decade last month as domestic demand picked up following the coronavirus crisis. Offsetting the positive news was continued weakness in employment and exports, with the latter falling for the seventh consecutive month.

Fiona Cincotta, analyst at City Index, said the ‘upbeat data adds to mounting evidence that the economic recovery in China is getting back on track faster than expected’.

‘Attention will now turn to manufacturing PMI data from the UK and Europe,’ she said.

Tech trust boost

Allianz Technology (ATT ) gained nearly 3% or 68.5p to £23.98 on strong half-year results showing the investment trust’s net asset value (NAV) jumped 36.7% as tech stocks soared in the coronavirus crash, beating its benchmark index which rose 22.4% up to 30 June. 

Fidelity Japan Trust (FJV ) narrowed its 8% discount to NAV with a 2p or 1.2% gain to 170p after half-year results showed a 2.3% rise in assets compared to the 0.8% decline in its stock market benchmark. Healthcare, communications and tech stocks were the biggest contributors to performance, said fund manager Nicholas Price, while energy, real estate and financials held back returns. 

Alternative Income (AIRE ) real estate investment trust leaped 5.6% or 2.8p to 51.8p as it sold the Wet ‘n’ Wild Water Park in North Shields to its tenant for £3.2m at a 12% premium to the 30 June valuation. M7 Real Estate, its new fund manager, topped up its holding to 1m shares by buying more stock on their wide 44% discount to NAV.

Standard Life Investments Property Income (SLI ) shed 1.6p or 2.8% to 55.3p after cutting its quarterly dividend by 40% to 0.714p. NAV fell 4.3% in the second quarter or by 3% with dividends included. Just 60% of rents in the current third quarter have been collected, though the company said this would rise to 69% as some tenants paid monthly.

Octopus Renewables Infrastructure (ORIT ) slipped 2.1p or 1.8% to 112.9p as investors took some profits on the 17% premium the stock closed at on Friday after the company revealed NAV had dipped 0.4% since its launch last December due to Covid-19 delays in investment. 

Following the purchase of a French solar portfolio last week, around three quarters of the money raised nine months ago has been deployed. ORIT says the timing of its launch means most of this year’s energy price falls have been reflected in the prices it paid on investments, thus avoiding some of the write downs that other renewable energy funds have had to make.


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