Markets rise, Burberry shares down despite strong results and China’s Geely pays a premium to buy a large chunk of Aston Martin

“European markets got off to a good start on Wednesday with gains across all the major indices. The FTSE 100 rose 0.4%, driven by housebuilders, packaging companies and telecoms providers,” says Russ Mould, Investment Director at AJ Bell.

“Wall Street last night saw a particularly strong showing, with the S&P 500 up 1.2% and the Nasdaq rising 1.3%.

“Despite this positive sentiment, there remains a large elephant in the room. Joe Biden is dangerously close to the 1 June deadline to reach an agreement on raising the US debt limit, otherwise the US government will default on its bills. That could cause all kinds of problems with federal workers and to the US economy and likely cause a global stock market correction.”

Burberry

“Burberry has reported a very strong set of results, with revenue, profit, margins, free cash flow and dividends all heading in the right direction. China’s reopening has certainly helped to fuel demand for its products, but it isn’t solely reliant on that region to do well.

“Chief executive Jonathan Akeroyd and designer Daniel Lee are trying to refocus on ‘Britishness’ to help keep the brand distinctive from what is now a highly competitive market globally.

“Having a wealthy clientele is an advantage in the current economic climate as Burberry’s typical customer is going to be less affected by the rising cost of living than someone whose pay packet is almost entirely gobbled up by bills and everyday essentials.

“However, that doesn’t mean Burberry is immune from an economic downturn. We’ve seen in recent months signs of cracks in the luxury goods market. Diamond prices have been falling, so too the value of second-hand luxury watches as the market is flooded with supply.

“The fact Burberry hasn’t lifted its guidance for the new financial year after reporting such a strong set of results, and reference to it being ‘mindful’ of the macroeconomic and geopolitical environment, appear to have been the trigger for some investors to take profits in the stock, with the share price falling more than 6% on the latest news.

“Investors want companies to consistently beat expectations and if they can’t do that, they will look elsewhere in the current market.”

Aston Martin

“After one of the worst starts to life as a listed company, with the share price initially plummeting, there has been a complete change in fortunes for Aston Martin, with it being one of this year’s best performing stocks, up 75% year-to-date.

“Chinese automotive group Geely has struck a deal to significantly increase its shareholding in Aston Martin, paying 335p per share for 70 million shares – a massive premium to last night’s 231.2p closing price.

“That shows considerable interest in the business and suggests that Geely is serious about wanting to have more influence over how the iconic car maker is run, and how China could be a major market for the brand.

“Aston Martin has been targeting the Asian market for some time, knowing there is great appeal in the region for its products and British heritage in general. It has recently talked about China and Japan as being ‘rapidly expanding’ markets for luxury cars. Asia Pacific accounted for £353.5 million of the car maker’s revenue in 2022, equal to a quarter of group sales.

“The British group will no doubt have its eye on tapping into Geely’s connections to get the best price on components and to better understand how to market to the Chinese consumer. For Geely, it wants to dominate the automotive industry and owning a slice of Aston Martin is another step towards achieving its goal. It is also likely to work with Aston Martin to see if it can take any learnings away from how the British cars perform.”

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