International News (Issue 362) – 31 July 2015

EARNINGS SEASON… CHINA WEAKNESS

The big stuff globally this week was reporting season. I won’t profess to cover all the many major international companies to have reported profits, but there were a few that stood out for what they had to say on China.

Specifically, several major companies warned on profits out of China. FANUC, Samsung & Schneider Electric all commented on a deterioration in Chinese sales, and in the case of FANUC, they even remarked that the coming quarter would deteriorate further.

FANUC and Samsung are hugely significant because they demonstrate the slowing in smart-phone sales, a change in what has been a powerhouse trend for several years. FANUC is the world’s largest and best robotics and automation company, and they remarked of a deterioration in the sale of equipment used in the manufacture of handsets. Samsung is obviously the world’s leading handset manufacturer.

Beyond China, most corporates across Europe and the US were demonstrating continued strength in profits, and this is a neat offset to the declining Chinese environment.

CHINA SHARE COLLAPSE…

The other big deal this week from China was the stock-market collapse. Another 10% was lost from share values in China this week, with little news flow to speak to the size of the selling.

In a nutshell, China’s economy is slowing quite rapidly, its share-market is still far from cheap, and most significantly there is greater contention as to the ability of the government to pull policy levers to stave off not only further share-market falls, but further economic deterioration.

Really simply, China’s economy, market and society exists to a large extent on the belief the government can and will engineer ongoing growth and with that improved social prosperity.

If it proves that ‘Beijing’ look less like the Wizard of Oz and more like the ‘man behind the curtain’, as recent policy pronouncements seem to suggest, perhaps there is a greater chance of an ugly unravelling there than we expect.

US INTEREST RATES…

In the US, the Federal Reserve met this week, and as to be expected, pronounced no change in rates – the market continues to look towards a hike in base rates in September.

Sorry for my brevity here. Any specific questions here please call me directly. JB

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