Today’s Daily Brief: SMIC Gets Blacklisted, FedEx Gets All The Green

Today’s Daily Brief: SMIC Gets Blacklisted, FedEx Gets All The Green

about 3 years ago3 mins

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The US added Semiconductor Manufacturing International (SMIC) to its trade blacklist late last week, and investors sent the Chinese chipmaker’s shares down 5% – after checking everything twice, obviously.

What does this mean?

This whole saga kicked off earlier this month when the US Department of Defense accused SMIC of having ties to the Chinese military. And now the US Department of Commerce wants its pound of flesh: it’s adding SMIC to its export blacklist, which will restrict the company’s access to US goods and services. That’s a blacklist that includes around 300 Chinese-based firms and affiliates, and while the US will soon have a new administration in charge, it’s still not clear how many – if any – of the current orders will be unwound.

SMIC’s Hong Kong stock has been on a roller coaster all year

Why should I care?

For markets: From bad to worse.

Blacklists are, unsurprisingly, bad for business: not only will SMIC now struggle to get its hands on the US technology it needs to make its chips, it might have difficulty holding onto American investors too. The US government, after all, has banned folks from investing in any company it says is helping China’s military. And to make matters worse, one of the biggest stock index companies in the world announced last week that it won’t include SMIC in any of its indexes anymore – the latest of several index companies to impose the crackdown.

The bigger picture: You can’t blacklist love.

All this friction comes at a time when appetite for Chinese stocks among US investors is reaching record highs. Chinese-based companies raised almost $12 billion through initial public offerings (IPOs) in America this year – the most since ecommerce titan Alibaba listed in 2014. And US investment banks won’t want to see the countries’ relationship deteriorate either: they’re bagging record fees for holding Chinese companies’ hands through their IPOs.

Companies from China have raised large sums on US stock exchanges | The Wall Street Journal
Companies from China have raised large sums on US stock exchanges | The Wall Street Journal

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FedEx Gets All The Green

Fedex image

US logistics group FedEx really is the full package, reporting better-than-expected quarterly earnings late last week even though it’s been rushed off its feet.

What does this mean?

It’ll surprise no one to hear that FedEx has been delivering a lot more parcels lately, which might be why its revenues and profits both mopped the floor with analysts’ expectations. It reported its highest quarterly sales on record thanks to the millions more parcels than usual it handled – not least because online shoppers kicked off their holiday shopping even earlier this year. Its profit for the quarter doubled, in fact, making FedEx one of this year’s biggest corporate winners. Still, investors are a hard crowd to please: they were put off by the company’s reluctance to say what next year might have in store – both because the future’s still uncertain, and because the pandemic’s pushed up its costs – and they sent its shares lower.

Fedex stock
Source: Google Finance

Why should I care?

Zooming in: Supercharged.

This year’s lockdown-driven ecommerce boom has essentially forced FedEx to work like every day is peak season, but the official peak season only started last month. That means it’s finally been able to raise its delivery prices, which it’s now said it’ll extend for as long as it needs to. That might not necessarily translate into its profits, mind you: FedEx will need to hire more people, buy more trucks, and generally up their costs if they’re going to keep operating at such high capacity.

The bigger picture: Special delivery.

If the online shopping craze isn’t enough to send FedEx’s profits higher, the vaccine craze might do the trick. The delivery of billions of doses all around the world has been dubbed one of the most complex logistical exercises ever – and one that only established delivery companies like FedEx and UPS will be able to manage.

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