China worries haunt markets once again, Aviva returns to the acquisition trail and Entain warns of soft online growth

“China is set to go down in history as being 2023’s biggest disappointment for investors. Having started the year in everyone’s good books amid expectations of a big economic rebound, the Asian superpower has failed to deliver. Economic growth has become a struggle compared to the levels it generated a decade ago and government stimulus initiatives have lacked bite,” says Russ Mould, Investment Director at AJ Bell.

“The property sector has been at the centre of the country’s troubles and it’s going from bad to worse. Evergrande is back centre stage after saying it was struggling with its debt restructuring plan following poorer-than-expected sales, causing its shares to dive and taking the Hang Seng index down for the ride. The index’s real estate sector fell by 2.5% on the day, with Evergrande’s shares down by a quarter at one point.

“The property sector is very important to China’s economy and therefore associated problems will weigh on the stock market. Investors are losing faith in China and this situation is only going to make matters worse for the markets.

“Anything bad in China typically has a negative knock-on effect to UK-listed diversified mining stocks, explaining why Rio Tinto and Anglo American were among the top fallers on the FTSE 100. Investors are clearly worried that commodity demand will weaken if China’s economy continues to falter.”

Aviva

“Aviva is back on the acquisition trail following several years of asset sales. Apart from buying Succession Wealth last year, Aviva’s strategy has principally been one of streamlining, shaking off non-core activities so it can be leaner and meaner in the pursuit of growth. It is now buying AIG’s UK protection business for £460 million, promising ‘strategic and financial benefits’ to the new owner.

“Chief executive Amanda Blanc received a lot of credit for helping Aviva to become more focused, so the pressure is on for her to show that acquisitions are being done for the right reasons, and not a repeat of the past which led to a bloated business.”

Entain

“The big threat bookmakers face across the global markets in which they operate is greater regulation and that’s reflected in today’s warning of softer online revenue growth from Coral and Ladbrokes owner Entain.

“The social harm from gambling is such that governments are stepping up their efforts to curtail the impact both in betting shops and on the internet.

“This means companies have to spend more on measures to mitigate problem gambling and that can lead to slower customer acquisition. The weak growth flagged in Australia and Italy also suggests people are not gambling as much or as frequently because cost-of-living pressures mean they have less in their pocket to fund a flutter.

“Entain deserves some credit for maintaining its earnings guidance for the full year despite the disappointing third quarter showing as it keeps a tight rein on costs.

“However, it may be making some optimistic assumptions about performance in the fourth quarter in sticking with forecasts which could fail to materialise, resulting in a damaging profit warning down the line. If the company opts to dial back on marketing spend it could also lead to a loss of market share and store up problems for the future.

“Much rests on its 50-50 BetMGM venture with MGM Resorts in the US – the latter’s historic bid interest in Entain could have the potential to be revived if the company’s share price and performance remain depressed.”

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