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Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories include: Is Tesco set to become the biggest retailer in Hong Kong? US bonds hit new two year high as Fed sits on fence. Weale warns of more UK QE. Zuckerberg plan to grab five billion more users


Is Tesco set to become the biggest retailer in Hong Kong?

ParknShop is owned by Chinese billionaire Li Ka-shing. It has 345 outlets; 270 of them are in Hong Kong.

Tesco recently chose to throw its 131 stores in with China Resources in a plan to create a 3,000 stores operator in China. Tesco is to have a 20 per cent stake in the Joint venture with China Resources.

Now it appears China Resources and Tesco are trying to make a move on Hong Kong. They are bidding, or so says a report from Bloomberg, for ParknShop. If the bid is a success, China Resources, or its joint venture with Tesco, will become the largest supermarket chain in Hong Kong.

Frank Lai, chief financial officer for China Resources, told Bloomberg: “We will consider to bid with Tesco; it’s one of the discussions we have with them.” He said if the deal goes ahead, the result will: “increase market share, improve efficiency and achieve economy of scale.”

Tesco may have given up on its Fresh and Easy venture in the US; it may possibly have given up on creating a Tesco brand in China, but it has not given up on its ambitions to be a major player in China.

The deal with ParknShop may or may not go ahead. The Chinese company does have lots of interested buyers. But this story does, above all, show that Tesco’s plans in China have not come to nothing.

US bonds hit new two year high as Fed sits on fence

The latest minutes from the Fed contained as many surprises as there are in a box of Maltesers. But the markets reacted as if they were surprised anyway.

Yesterday saw the latest minutes from the US Federal reserve rate setting committee or FOMC. “A few members emphasised the importance of being patient… before deciding on any changes,” stated the minutes. Others, it appeared disagreed, and the minutes stated: “A few others pointed to the contingent plan that had been articulated on behalf of the [FOMC] the previous month, and suggested that it might soon be time to slow somewhat the pace of purchases as outlined in that plan.”

Some might ponder on those words. The minutes do not use phrases like “a few” lightly. So how many is a few? It is less than half? Is it less than a quarter? Or are there too few minutes in this life to ponder these questions any further?

What is clear is that the Fed has not yet decided on how rapidly it needs to ease up the QE. Maybe the minutes are a tad more dovish than expected.

The markets, however, do pay attention to the meaning of Fed speak, and they have been busy selling.  Once again the main victims were bonds and some emerging markets assets.

The yield on US ten year government bond sits at 2.91 per cent at the time of writing. This is double the low point from the summer of 2012.

This begs the question: if bond yields can rise so fast, why can’t mortgage interest rates?

The markets, however, are not bothered about that. The sell-off in emerging markets currencies has continued, with the India rupee dropping even further, and the Indonesian rupiah being another major victim.

Gareth Leather, Asia economist at Capital Economics, said: “Given the fragility of confidence there is a risk of a destabilising rout, especially in India.”

But then he went all bullish and said: “There are good reasons to think that the big adjustment in the region’s financial markets has now taken place. After all, the unwinding of QE and an eventual shift to tighter policy in the US are now widely expected and should be priced into the market. Actual tapering of QE could therefore turn out to be a damp squib.”

As has been said here before, the panic over emerging market debt, when at least some of the economies actually seem to be built on pretty solid fundamentals, may well present an opportunity for investors.

But one emerging market has not suffered so badly.

Emerging Europe has been largely immune to markets’ venom. There have been modest falls with bonds. As for currencies, the Hungarian forint, Russian ruble and Turkish lira have lost between 2 and 3 per cent relative to the euro. The Polish zloty has pretty much been unchanged, while the Czech koruna rose slightly. Stocks in Poland and the Czech Republic have risen by between 6 and 9 per cent so far this month, which is measured in each country’s respective currency.

The truth is that what we are seeing is the reverse of what we were seeing last year. Countries that did well in 2012 are now struggling, and the stragglers of 2012 are now winning.

Weale warns of more UK QE

Meanwhile, Martin Weale – who is one of the external members of the Bank of England’s MPC, and voted against forward guidance in the last meeting of the committee – has suggested that QE may not be over.

He told the ‘Telegraph’: “As far as I am concerned, asset purchases remain a tool available to the committee if it feels the economy needs further support…I would hope the recovery is well entrenched, but anyone who thinks the future will unfold smoothly is not taking account of everything that has happened in the past five years.”

The latest MPC minutes stated: “One member of the committee [that’s Mr Weale] while supportive of the adoption of forward guidance, voted against the proposition in order to register his preference for a time horizon for the first inflation knockout that was shorter than proposed.”

At first glance the Weale move seems to be contradictory. His stance at the MPC meeting was interpreted as being hawklike, but his words on QE are clearly dovish.

But first glances are not always right. We live in an uncertain world. No one knows what tomorrow will bring. Forward guidance may be flawed as a concept because it presupposes it is possible to make meaningful comments today about what we will do in the future. It may be that circumstances change, unemployment may remain high, and inflation may shoot up, or sterling may crash. If any of these things happen, forward guidance may be retrospectively changed. On the other hand, the recovery may peter out and more QE may be required. Maybe, perhaps and if. Markets and the electorate in democracies want certainty. They can’t have it, any more than a child can have Christmas every day.

You could interpret the words of Martin Weale as saying he is a realist, who accepts uncertainty and sees flexibility as the only possible solution. Such flexibility may lead to dovish or hawkish policy moves in the future.

Zuckerberg plan to grab five billion more users

How would you like to have five billion more customers? It seems like an ambitious target. Given that, as of yet, no one has found a way of selling goods and services outside planet Earth, and given that humanity appears to be the only customer most companies sell to, five billion appears to be pretty close to gaining a rather high share of the potential audience.

Yet that is the plan presented by Mark Zuckerberg, founder of Facebook.

But actually, or so says the press release published by Facebook, this is not about the selfish aims of the company; it all about Zuckerberg’s wishes for a better world for all.

So Zuckerberg has launched Internet.org. “The goal of Internet.org,” stated the release, “is to make internet access available to the two-thirds of the world who are not yet connected, and to bring the same opportunities to everyone that the connected third of the world has today.”

The release continued: “Facebook, Ericsson, MediaTek, Nokia, Opera, Qualcomm and Samsung will develop joint projects, share knowledge, and mobilize industry and governments to bring the world online.”

You can be cynical, and plenty of people are, and say this is all about Zuckerberg trying to get more users for Facebook.

But if it is the case that the five billion new users join the internet, and Facebook – because of its market presence – can convert a great many of these new users to become its users, so what?

The objective is laudable. The internet is a great leveller. It brings opportunity to those who were previously starved of any chance to make a success of their lives. The internet may yet be the means by which countries that seemed destined to be poor forever, eventually join the developed world.

As for Facebook, if this bold plan is a success will Facebook gain? Of course it will. It will continue to gain until the day someone comes up with a new way of doing things that makes Facebook obsolete.

 

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees


Showing 3 comments

  1. “But this story does, above all, show that Tesco’s plans in China have not come to nothing.” – but they have.

    Tesco currently has a 20% stake in a joint venture, likely to be further diluted with future mergers.

    Since when did Tesco seek a future as an investment company, with zero control of events – “We will consider to bid with Tesco; it’s one of the discussions we have with them.” – Quite.

    Tesco is at a turning point; failed in the US (again), squeezed like a lemon in China, and confused in the UK. Not somewhere I’d place my pension fund, at least until their strategy (if any) is clearer.

  2. [part 2]

    In case you were tempted to refer me to Tesco’s Corporate Strategy, I’ve taken a look – http://www.tescoplc.com/index.asp?pageid=12

    It’s a masterpiece of weasel words, vaguery and bumpf – probably written by an intern at Tesco’s PR company; it holds no useful information for potential investers.

    We live in interesting times – as Tesco’s friends in China may have pointed out ;-)

  3. Michael Baxter

    Andrew, you may well be right, but personally I think it is too soon to say. Better to have 20 per cent of what might become the biggest retailer in China, than no per cent at all.

    Then again, I don’t like too see Tesco as the junior partner

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