Fight Or Flight

Fight Or Flight

over 4 years ago3 mins

Mentioned in story

If bad news travels as fast as they say, it must’ve steered clear of the US-China trade war and Hong Kong protests this week.

🕰️ Recap

  • In March, a fatal crash led to the grounding of Boeing’s 737 MAX 8 planes
  • Later that month, US airlines flagged the earnings they likely lost due to disrupted flights
  • In May, struggling European travel firms Thomas Cook and Easyjet warned investors of their turbulent times
  • The world’s largest container shipping firm, Maersk, said the ongoing US-China trade war would hamper its profit growth
  • And this week, airline Cathay Pacific was drawn into the Hong Kong protests by the Chinese government, sending its shares down

🔗 Connecting the dots

Global travel – of both people and products – is central to the world economy. Investors use executives’ trips as a sign of potential dealmaking, while tourism can be the be-all and end-all to countries and companies alike (just ask jeweler Tiffany’s). And it almost goes without saying how important sea and air freight are to moving products around the world – hence they’re typically bellwethers for economic growth. Shipping magnate Maersk, for example, warned in May that the US-China trade war would reduce the amount of goods it’d move across borders. Perhaps it was inevitable, then, that trade-reliant Thailand took steps to prop up its economy last week.

Likewise, the grounding of some Boeing planes this year has disrupted flights and led to profit warnings from the affected airlines – and effects are still being felt. European travel firm Tui this week reported an almost 50% drop in its second-quarter profit from a year ago, with the loss of its Boeing planes partly to blame. And on Tuesday, plane services company John Menzies reported a loss in the first half of 2019 versus a profit the same time last year, noting lower cargo volumes (here’s looking at you, trade war 🍻) and, of course, fewer Boeing planes in the skies.

Looking east, Hong Kong companies have also had a bumpy ride – and not just Cathay Pacific, whose CEO resigned on Friday. The protests in Asia’s luxury capital have, unsurprisingly, deterred high-rolling shoppers. So investors have sold off shares of Gucci parent Kering, whose recent momentum has been driven by sales in the region. They also shunned Dufry, the world’s biggest duty-free retailer, with disruptions at Hong Kong International leading to fewer sales.

🥡 Takeaways

Every day brings headlines aplenty, but run-of-the-mill investors (not Finimize readers, then 😉) may not always appreciate how long the effects last after people have stopped talking about the event itself. Companies may blame (or celebrate) a seemingly done-and-dusted event for their results months later – and a sharp stock price move might suggest investors hadn’t factored it into their forecasts. Countries too: on Tuesday, Singapore cut its economic growth projection for the year, chiding the protracted trade war.

Savvy investors (Finimize readers, then 😉) are always on the lookout for second- or third-order effects. Take Boeing: investors sold off its shares after this year’s tragedy and the subsequent grounding of some of its planes, but the shrewd ones realized that rival Airbus would benefit by winning major plane orders. And only the smartest cookies thought to buy shares of Airbus’s publicly listed suppliers and sell those of Boeing.

🎯 Also on our radar

This week, coworking space company WeWork announced it’d shortly be making its stock market debut. As investors pore over its financials – including its epic losses – they’ll try to understand why its current investors think it’s worth $47 billion, and decide what they think it’s worth. Lucky for you our latest Pack tells you everything you need to know about the company.

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