Markets perk up, HSBC unveils bumper buyback but warns on costs and Frasers strikes a deal with Shein

“European equity indices pressed ahead at the start of the new trading week as investors slowly regain their appetite for riskier investments following last week’s tough spell for stocks,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 advanced 0.9% to 7,356 as investors flocked to the technology, consumer, industrials, utilities and basic materials sectors. Airtel Africa took the top slot on the blue-chip risers, up nearly 7% thanks to reporting strong customer growth.

“Ascential shone among mid-caps, soaring 36% after striking two asset sale agreements with Omnicom and Apax so that it can focus on events.

“It’s a big week for interest rate decisions with the Fed announcing on Wednesday and the Bank of England on Thursday. Both are expected to keep rates unchanged, which should provide some relief to investors, although much of the focus will be on commentary about the path for rates going into 2024.”

HSBC

“A larger than expected share buyback seems to be doing a lot of the heavy lifting for HSBC today – making up for some less than positive details in its third quarter results.

“What may sober up any investors drunk on a $3 billion handout is the higher-than-expected cost growth now expected for 2023. Management had made keeping a tight rein on any outgoings a key part of their strategy, so to fall down on this point does some damage to their credibility.

“Given part of the bloated costs relates to higher performance-related pay, HSBC could be exposed to some political or even regulatory blowback.

“For now, HSBC, whose horizons go far beyond the UK, is seen in a much better light by the market than its rivals and it is notable to see it sticking with its return on equity targets for 2023 and 2024.

“Certainly, there was nothing in these results to prompt the kind of loss of faith experienced by its other foreign-focused rival Standard Chartered after its own third-quarter update.

“And given the difficulties faced by the Chinese economy in 2023, a key market for HSBC, its level of performance has been impressive. To sustain this, CEO Noel Quinn’s observation that China’s commercial property market has bottomed out will have to prove accurate.”

Frasers

“Frasers’ sale of Missguided assets to Shein could prove to be a strategically important move for the UK retailer. It provides a foot in the door to a potential close working relationship with the Chinese fashion seller.

“Shein has become a major force in online retail and is one of the key reasons why the likes of ASOS and Boohoo are struggling. The Chinese company is aggressive on price, selling items cheaper than rivals and becoming the go-to-place for young shoppers in many parts of the world.

“Frasers could feasibly be interested in a distribution deal whereby it can sell its products on Shein’s platform, while also using its Sports Direct and Flannels stores as a potential return hub for the Chinese partner. The more people coming through its doors, the more opportunities it has to try and sell its products.

“In the US, Sparc recently struck a deal with Shein to do something similar with the Forever 21 brand and is even going as far as taking a stake in the Chinese group and vice versa.

“You might think it an odd move to be working closely with an arch-rival. But Sparc and potentially Frasers know there is a benefit in having greater distribution reach.”

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