- South Korea’s Kospi and currency stabilises after martial law lifts, but political risk remains.
- France’s minority government faces a no-confidence vote which may lead to fresh economic limbo.
- FTSE 100 opens flat with another record Wall Street close offsetting concerns about political crises.
- Revolut favours US over UK for a listing due to London’s low liquidity and the cost of trading.
- FTSE reshuffle will push fantasy world maker Games Workshop into the big league.
- Fraser Group, Vistry and B&M European Value Retail prepare to be relegated.
- Deliveroo to enter the FTSE 250 for the first time.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“Political risk has been put back on the agenda after South Korea was plunged into chaos by the declaration, then subsequent lifting of martial law. Deep uncertainty looms for France too. The looming vote of no-confidence in the minority government of Michel Barnier threatens fresh political upheaval in a key EU member state. The internationally focused FTSE 100 has opened flat, with optimism washing around Wall Street offsetting concerns about political instability in Asia and Europe. Friday’s key monthly jobs report is being eyed amid hopes it may show a US labour market which is buoyant but not hot enough to derail a gradual easing of interest rates in the world’s largest economy.
South Korea crisis
South Korea’s currency, the won, went into freefall but has stabilised after the about turn from President Yoon Suk Yeol, following mass demonstrations and an emergency vote by politicians. They are now calling for the President’s resignation. The shock moves also led to losses on the main Kospi index, which has recovered some ground, but is set to remain volatile. Samsung shares ended down 3.3%, as investors assessed the potential for further fractious relations ahead. The sharp escalation comes after months of political conflict and the longer Yoon Suk Yeol remains in office, given the turn of events, there will be concerns the further instability could wrack the country which is a key US ally. The central bank’s pledge to provide unlimited liquidity to prop up markets has provided some reassurance but also demonstrates the concern that there could be further trouble ahead.
French no-confidence vote
Michel Barnier’s belt tightening budget has gone down like a lead balloon with his opponents. Leading a minority government forcing through hugely unpopular measures is a highly precarious position to be in. If he is defeated, which looks likely, France will be weighed down by a burdensome budget deficit while another political vacuum opens. If difficult decisions are put off clouding the economic horizon, it won’t help business confidence and may limit investment and recruitment and could lead to further wariness among consumers. For now, bond vigilantes haven’t put the boot in, but defeat could see French yields rise further. The risk premium over Germany headed to the highest level since 2012 last week but French borrowing costs are lower than they were in July, helped by expectations of interest rate cuts from the European Central Bank.
Revolut warning
The lack of liquidity and the costs of trading in London, compared to the US is under the spotlight again. The boss of Revolut has cited these issues as the reason why it’s unlikely the UK-based Fintech will go for a London listing. It will be another jolt of realism for the Keir Starmer’s government. Ministers have attempted a charm offensive to tempt more firms to choose the City for stock market launches. But it’s clear the reforms enacted and proposed don’t go far enough to persuade the big hitters to add more shine to London’s reputation.
FTSE Review
The FTSE quarterly review will be announced by FTSE Russell later and it’ll include a retail reshuffle, with B&M European Value Retail and Frasers Group set to slide out of the blue-chip index. It will also see fantasy and sci-fi world creator Games Workshop propelled into the big league. Vistry’s budget miscalculations will have cost it a place in the FTSE 100, while a recovery in the share price of wealth manager St James Place thanks to a big shake up is propelling it back up the table. Dundee based Alliance Witan investment trust is also set to leap into the FTSE 100 given the might of the newly merged company. A change in the listing rules will see Deliveroo enter the FTSE 250 for the first time, just months after the company finally turned a profit.
Games Workshop
Games Workshop is a one stop wonder-shop when it comes to tabletop miniature gaming and its prowess at the full sweep of production design, manufacturing, distribution and retail has made it a global leader. This means that it doesn’t have to rely on third parties to develop create and sell its products, helping keep margins higher. In terms of market share, no rival comes close. The science fiction and fantasy market is huge and Games Workshop keeps fans entertained every step of the way, drawing in collectors of miniature to paint their own models to play at home or at big events. This huge store network around the world, enables it to recruit new players and customers from an early age. Spin offs including books, magazines and online content helps with maintaining recurrent revenue. Its top hit Warhammer 40,000 has had a big year, with the 10th edition launched which drove record revenue, helped by its video game licensing. This push into licensing is a big part of the company’s future growth strategy, with potential forged with Amazon to develop the game into films or series. This has all helped Warhammer cement a strong financial position, with a deep well of accessible cash offering the company significant flexibility.
Frasers Group
Frasers Group shares are down around 16% over the last six months, amid nervousness about its position as consumers show caution. Its brand elevation strategy with the company integrating luxury names into its offering is tricky, when aspirational shoppers are more wary about splashing the cash. Its low-cost Sports Direct chain does offer resilience, pulling in more than half of total revenues last year. However, the chain is also having to contend with the ongoing shift from bricks and mortar to online and falling footfall for department stores. As it restructures its portfolio, the closure of several legacy House of Fraser shops has dented profitability in the short term but should free up cash to deploy in more productive areas of the business. Fraser Group’s attempts to wrestle more control of companies its invested in, notably Mulberry and Boohoo has been watched closely, and the constant rebuffing has also caused some extra volatility in the share price.
B&M European Value Retail
Investors have been rattled by falling like-for-like sales at B&M European Value Retail. Although the decline was stemmed at the last count, relying on growth from new store openings is far from ideal. Keeping existing customers coming back for more is crucial and it seems the product mix has not chimed well enough, despite the ‘pile ‘em high, sell ‘em cheap’ approach. Nevertheless, it’s store expansion programme is ramping up, with the target of 1,200 stores across the UK, up from 764 this month. This rapid growth of the store estate will bring higher lease liabilities as well so merchandising expertise in the months ahead will be crucial to ensure sales growth returns to a steadier footing.
Vistry
Sharp disappointment in Vistry’s performance is set to see the company exit the FTSE 100. It had been chasing faster-than-average growth since its transition to a Partnership giant, specialising in providing affordable housing by teaming up with local authorities. But the scale of recent profit downgrades raised big questions about the new structure and internal controls, and seriously dented the share price. An independent review points to the problems being contained to one division, but Vistry will need to work hard to rebuild investor confidence. Vistry’s high volumes of affordable housing looks well aligned with the new government’s ambition to address the country’s housing shortage. But demand softened in the run-up to the government’s Autumn budget. With falling interest rates expected to be a tailwind, where demand tracks from here will be key.
St James’s Place
The recovery plan underway at St James’s Place has been reaping rewards following a torrid period which saw it booted out of the big-league. The turbulence was prompted by concerns about its business model following the introduction of the new Consumer Duty last summer which imposed a legal requirement to treat customers fairly After the company outlined new growth targets and cost-cutting measures in the summer sentiment has improved towards the company. The improving macro-economic climate in early Autumn with interest rate cuts eyed on the horizon, also helped boost funds under management. It also flagged that uncertainty about the impact of the UK Budget on portfolios was also going to keep its advisors in demand.
Deliveroo
Thanks to a change in the rules surrounding listing requirements, Deliveroo is set to arrive into the FTSE 250 for the first time. Since July, the standard and premium segments have now been replaced with a single equity shares category as part of plans to make London more attractive. Although the jury is out whether that’s having the desired effect, it has opened new doors to Deliveroo and means it will be included in funds which track the FTSE 250 index. This looks set to boost demand for shares just at a time when sentiment has improved slightly, thanks to the delivery service making a profit for the first time. However, shares are still languishing well below the level they traded back in the summer of 2021 soon after listing. The future is still uncertain for the delivery company, given the competition from big players like Uber Eats and Just Eat Takeaway, but increases in ad revenue and efficiencies made across the business have helped the bottom line.
