LONDON MARKET MIDDAY: Uninspiring China data hurts miners and luxury

(Alliance News) - China's economy expanded at an unimpressive pace, bringing growth fears for the world's second-largest economy to the fore again and ensuring equities kicked off the new week on the back foot.

Mining stocks and luxury retail were the worst hit, with the latter falling despite Cartier-owner Richemont reporting first-quarter sales growth. Among other London-listings, there was some impetus from deal-making, with Sovereign Metals getting blue-chip backing and Gresham House agreeing to going private.

The FTSE 100 index traded down 19.35 points, 0.3%, at 7,415.22 on Monday. The FTSE 250 was down 87.80 points, 0.5% at 18,479.01, and the AIM All-Share was down 1.38 points, 0.2%, at 749.40.

The Cboe UK 100 was down 0.4% at 739.29, the Cboe UK 250 was down 0.6% at 16,205.11, and the Cboe Small Companies was 0.1% lower at 13,490.11.

In European equities on Monday, the CAC 40 in Paris was down 1.2%, hurt by luxury retail stocks, while the DAX 40 in Frankfurt was down 0.5%.

Sterling was quoted at USD1.3091 midday Monday, lower than USD1.3117 at the London equities close on Friday. The euro traded at USD1.1234, lower than USD1.1240 at the same time on Friday, but up from USD1.1225 at the time of the last New York equities close. Against the yen, the dollar was quoted at JPY138.09, down versus JPY138.55.

"A raft of Chinese data releases today offered little in the way of joy for those hoping for a swift Chinese recovery story," KCM Trade analyst Tim Waterer commented.

"In terms of challenges, the one that again stands out like a sore thumb from today's data set is the new record high in youth unemployment (21.3%). This number is unlikely to get any prettier in the coming month or two due to seasonal factors and given the potential structural impact of soaring youth unemployment investors will be closely monitoring to see what if any measures the [People's Bank of China] introduces to address this area of concern."

China's economy grew 6.3% year-on-year in the second quarter, a figure that belies the country's slowing post-pandemic recovery and one that analysts warn is inflated given the low base of comparison with lockdown-wracked 2022.

Beijing's National Bureau of Statistics released the growth data, saying in a statement that the economy "showed a good momentum of recovery".

In quarter-on-quarter terms, Monday's data showed the world's second-largest economy only grew 0.8% in April through June, slowing from the 2.2% growth seen in the first three months of 2023.

Meanwhile, retail sales, a key gauge of consumption, edged up 3.1% in June from a year earlier, according to the NBS, slowing from the 13% rise in May.

All-in-all, the reading poured even more cold water on hope that the Chinese economy would bounce back with haste after years of crippling Covid-19 curbs.

Mining shares struggled in London as a result. Glencore fell 2.4% and Anglo American lost 2.3%.

Also on the decline were European luxury retail shares, an influential sector for France's benchmark CAC 40 index. Both LVMH and Hermes fell 4.4%, and Kering gave back 2.0%. In London, Burberry fell 1.5%, and Zurich-listed Richemont, tumbling 9.4%, was the worst-performer of the lot.

Richemont said first-quarter sales grew, helped by a strong "rebound" in the Asia Pacific region.

The Cartier owned reported "muted" sales in the Americas, however.

In the three months that ended June 30, the luxury goods firm said total sales rose 14% to EUR5.32 billion from EUR4.65 billion a year earlier. At constant currency, sales surged 19% on-year.

Constant currency sales growth in almost all regions was in double-digit territory, including a 40% rebound in Asia Pacific. In Europe, sales rose 11%, slowing from "demanding comparatives". In the second quarter of 2022, sales in Europe jumped 52% at constant currency. In the Americas, sales fell 2% on-year at constant currency.

AJ Bell analyst Danni Hewson commented: "A weak showing in the Americas for Swiss luxury goods group Richemont surprised investors. Its Asia Pacific sales have bounced back as activity in mainland China, Hong Kong and Macau picked up. However, the Americas suffered from lower wholesale sales and sluggish retail numbers."

Stocks in New York are called to open lower on Monday. The Dow Jones Industrial Average is called down 0.2%, the S&P 500 down 0.1% and the Nasdaq Composite marginally lower.

Corporate earnings will be in focus again this week. Bank of America and Morgan Stanley report quarterly earnings on Tuesday, before Goldman Sachs, Netflix and Tesla on Wednesday.

In London, alternative asset manager Gresham House jumped 55% to 1,056.31 pence, giving it a market capitalisation of GBP404.3 million. It has agreed to be taken over by Searchlight Capital Partners.

The offer values Gresham at around GBP469.8 million on a fully diluted basis, or GBP440.6 million on an enterprise value basis.

At 1,105 pence per share, the bid is a 63% premium to the 680 pence closing price on Friday.

Wealth Club analyst Nicholas Hyett commented: "The acquisition of the UK's largest forestry investment manager, and second largest VCT manager, is a big vote of confidence in the UK's alternative investment industry. As a booming alternative asset manager, Gresham has been an important driver of capital behind major government initiatives to decarbonise the economy and spur innovation through investment in start-ups. Those investment categories have struggled a bit in a rising interest rate environment, but Searchlight clearly sees the long-term potential."

Sovereign Metals added 25% to 28.65p. Rio Tinto has snapped up a 15% stake in the AIM-listed exploration and development company.

Rio has invested AUD40.4 million, around GBP21.0 million. FTSE 100-listed Rio acquired 83.1 million Sovereign Metals shares at AUD0.486 each. The price paid was a 2.8% discount to the stock's closing price of AUD0.50 in Sydney on Friday, though a 10% premium to its 45-day average price.

Sovereign Metals shares closed 7.1% higher at AUD0.53 each in Sydney on Monday.

In addition, Rio Tinto has the option to increase its stake to just under 20% within 12 months. It has options for 34.5 million more shares at an exercise price of AUD0.535 each, around AUD18.5 million in total.

Sovereign Metals said the backing from Rio Tinto will be used to advance the Kasiya rutile and graphite project.

Sovereign Metals Chair Ben Stoikovich said the investment from Rio is a ringing endorsement of the Malawi-based asset and "confirmation of Kasiya's place as one of the most significant critical mineral discoveries in recent times".

Dianomi plunged 40%. The London-based digital advertising platform expects annual revenue to miss market expectations and fall below the previous year.

In 2023, it expects revenue to be between GBP30.5 million and GBP32.5 million, down 9.5% to 15% from GBP35.9 million in 2022.

Brent oil trading at USD78.66 early Monday afternoon, markedly lower than USD80.12 late Friday. Gold was quoted at USD1,952.64 an ounce, lower than USD1,957.56 on Friday.

By Eric Cunha, Alliance News news editor

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