This week: A ban lift on trade, China A-shares make headway and technology companies gain.
The latest twist in the Sino-U.S. trade saga suggests that there is a gulf between the U.S. administration’s anti-Chinese rhetoric and its willingness to negotiate solutions. There were sighs of relief in Shenzhen yesterday after the U.S. announced that it would lift the ban on companies supplying components to Chinese telecommunications giant ZTE.
Imposed for a breach of sanctions on Iran, the ban was supposed to last for seven years. But a new agreement will allow ZTE to buy from U.S. suppliers once more, in return for paying a $1.4 billion fine, changing its management and board, and submitting to U.S. monitoring. The move has pulled the company back from the brink of collapse, as U.S.-made components are essential to its business.
ZTE’s shares have been suspended since the ban was announced, but shares in its global component suppliers performed well in response to the announcement. Qualcomm and NXP Semiconductors also rose on the news. Qualcomm, a U.S. microchip-maker, hopes to acquire Dutch peer NXP but requires approval from the Chinese authorities to complete the deal.
The ZTE announcement wasn’t the only good news for Chinese companies this week. The 234 A-share-listed companies included in MSCI’s global and regional indices at the end of May enjoyed their first full week of trading as MSCI components. The A-share market is China’s domestic stock market, consisting of shares listed in Shanghai and Shenzhen, and has previously been relatively inaccessible to global investors.
Together, the Shanghai and Shenzhen stock exchanges make up the world’s second-largest stock market. Although the 234 shares currently included in the MSCI indices are just a fraction of the A-share market’s 3,000 stocks and around $8 trillion in market capitalization, more are expected to be included soon. In a report published in May, MSCI said that around half its emerging-market index could eventually be made up of Chinese shares.
With a spring in their step on the prospect of buying by index-tracking funds, the major Chinese A-share indices performed well in the first four days of the week.
A tale of two retail sectors
With the S&P 500 index up 1.3% by Thursday’s close, U.S. investors were also in bullish mood. The top performers were retailers Kohl’s and Macy’s. Investors have been encouraged by the way these companies have responded to the e-commerce threat with loyalty schemes and digital operations of their own.
On the other side of the Atlantic, the retail picture was less rosy. The sun has been shining this week, but the UK high street is still in the shade. On Thursday, House of Fraser announced that it would close 31 of its 59 department stores in 2019. These include its flagship Oxford Street store. The move could lead to the loss of 6,000 jobs. Although House of Fraser is privately owned, publically traded retailers were weak, with both Tesco and Sainsbury’s slumping on Thursday. Overall, though, the FTSE 100 eked out a modest gain of 0.3% by Thursday’s close.
Tech treks on
This was another eye-catching week for the technology sector. Amazon made gains, partially at the expense of insurers, as rumors emerged that the e-commerce titan is to move into the insurance sector. Another tech standout was Twitter. Its shares hit a three-year high as it replaced Monsanto in the S&P 500 – and investors were swift to register their “likes.”
And finally ….
Twitter users are often warned that internet never forgets. But neither, sometimes, does the Earth – not even over a period of half a billion years. This week, scientists in China announced that they had discovered the world’s oldest footprints in the Three Gorges area of Hubei province.
These are the first known footprints to predate the Cambrian explosion, when a wide variety of animal life appeared. Instead, the Three Gorges stepper belongs to the Ediacaran period, from which relatively few fossils have been found. That’s because most Ediacaran earthlings were simple, soft-bodied beasties.
The creator of the Yangtze footprints, however, may have been a hard-bodied arthropod, or perhaps a bristly sort of worm. Whatever it was, it was only around two centimetres long and about half that across. But its tiny footprints could represent a sizeable step in the understanding of our planet’s prehistory.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks may be enhanced in emerging markets countries.
Companies mentioned for illustrative purposes only and should not be taken as a recommendation to buy or sell any security. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.
Indices are unmanaged and have been provided for comparison purposes only. No Fees or expenses are reflected. You cannot invest directly in an index.
The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis, should not be taken as an indication or guarantee of any future performance analysis forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI” Parties) expressly disclaims all warranties (including without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages (www.msci.com).
Image credit: Photo 12 / Alamy Stock Photo