China’s GDP & mortgage protests hurt Asian stocks, plus Fevertree warns on profits as costs bite

“A barrage of news concerning China has given parts of the market something new to worry about,” says Danni Hewson, Financial Analyst at AJ Bell.

“The Shanghai SSE index fell 1.6% and Hong Kong’s Hang Seng dived 2.4% after China’s second quarter GDP figure came in significantly below expectations (0.4% growth versus 1.2% forecast).

“Although European indices traded higher on Friday, China’s problems could have a ripple effect and cause more turmoil on the markets in the coming days and weeks.

“China is one of Asia’s key growth powerhouses. We already knew that growth expectations were being pared back, but the latest GDP figure is the sort of pedestrian number one might expect from a developed Western nation.

“This doesn’t bode well as recession fears grow in many parts of the world, and it could fuel speculation that China’s commodities appetite may wane if economic activity is stalling.

“It’s no coincidence that Rio Tinto has given a warning about China in its latest production update, flagging uncertainties for this important commodities market.

“To make matters worse, thousands of people in China are refusing to make mortgage payments on unfinished properties after major delays to construction. Reports suggest the protest movement is growing rapidly, adding another layer of risk to the Chinese growth story.

“Burberry said in its latest update that trading had been impacted by lockdowns in China. While the country’s latest GDP figures included news that retail sales had picked up in June, there is a feeling that boost may only reflect pent-up demand from people who couldn’t get out during lockdowns, meaning the month’s sales recovery might be unsustainable.

“On the UK market, the FTSE 100 was propped up by oil, tobacco, pharmaceutical and banking stocks. All four of those sectors are known for generous dividends, suggesting that investors may be looking for safety in income stocks once again.”

Fevertree

“Premium mixers maker Fevertree will be feeling very flat after its latest update. The problem it faces is a familiar one – costs are rising, supply chains are in a mess and that is putting pressure on profitability.

“The challenging backdrop has resulted in a big profit warning for the current financial year and there are plenty of worrying signs that may stick in shareholders’ throats.

“In theory Fevertree should be in a reasonably good position to pass on higher costs. It is a premium brand and, relative to the cost of the accompanying alcohol, you’d think its customers might not worry too much about paying a bit more for their favourite mixer.

“The fact that Fevertree instead seems to be taking some of these extra costs on the chin at the expense of margins suggests its brand strength and market positioning might not have been as robust as previously thought.

“The return of the on-trade business in bars and restaurants has also not been enough to make up for a big drop in off-trade sales year-on-year.

“Outside the UK Fevertree is seeing strong growth and it is refreshing to see the company not panic and continue to invest in marketing, people and developing new products.

“Management’s view is that the challenges the business are facing are ‘transitory’, however investors have heard that same message from central banks over inflation before a rapid change of tune. On that basis they may well take some convincing.”

These articles are for information purposes only and are not a personal recommendation or advice.