Markets correct on rising yields | Calamatta Cuschieri

Market update, LVMH shares decline as China tightens control and BMW takes control of China venture Brilliance Automotive

Car making giant BMW is set to spend €3.6bn to increase its stake in Brilliance Automotive from 50% to 75%
Car making giant BMW is set to spend €3.6bn to increase its stake in Brilliance Automotive from 50% to 75%

US markets closed in the red on Wednesday as investors worried about rising bond yields which result in US corporations being squeezed by higher borrowing expenses. This has led to the famous FANG stocks (Facebook, Apple, Netflix, and Google) all falling in value. The Dow Jones Industrial Average fell by -3.15% to 25598.74 and the S&P 500 dropped -3.29% to 2785.68.

European markets also fell, with Italian banks under heavy pressure as continued worries over a budget clash between Rome and the European Union contributed to a continued selloff in the country’s government bonds. The pan-European Stoxx 600 Europe index dropped 1.1% to 372.12, led by a 2.4% drop from Italy’s FTSE MIB index. The UK’s FTSE 100 shed 0.9% to 7,251.44 whilst Germany’s DAX slipped 1% to close at t 11,994.39.

LVMH shares decline as China tightens control

Shares of LVMH, the owner of Louis Vuitton, Christian Dior and Dom Perignon Champagne were down as much as 8.4 percent in Paris after the company said Chinese customs authorities are stepping up border checks in an effort to curb the flow of unauthorized imports of Vuitton bags, Gucci loafers and other items, confirming speculation on social-media networks and deepening a selloff in luxury companies’ shares. The stakes are high because China accounts for roughly a third of the industry’s sales and a majority of its growth.

“The Chinese authorities have some laws that are being enforced with some more strength at times, which is what we’re seeing now,” Chief Financial Officer Jean-Jacques Guiony said on a call with analysts Wednesday. The slide in LVMH’s shares deepened even after the company reported a quarterly sales increase in line with analyst forecasts.

BMW takes control of China venture Brilliance Automotive

Car making giant BMW is set to spend €3.6bn to increase its stake in Brilliance Automotive from 50% to 75%. The German auto manufacturer will also invest more than €3bn to expand its existing production capacity in the country. The move comes about after the Chinese government proposed to relax rules for foreign auto makers operating in the Chinese market. Currently, foreign car makers that operate in China must have a joint venture with a Chinese company owning not more than 50% of the stake. BMW said the deal with Brilliance Automotive, which is subject to shareholder and regulatory approval, would not close until 2022 – the year where the 50:50 joint venture rule is set to end.

BMW CEO Harald Krüger said in a speech yesterday in China that “The total yearly production capacity of the BMW Brilliance Automotive (BBA) plants [in China] will be gradually increased to more than 650,000 units in total from the early 2020s". He further stated that BBA was the primarily reason for BMW’s success in China and the increased investment being made would allow BMW to produce up to 100% electric vehicles.

 

Disclaimer: This article was issued by Peter Petrov, junior trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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