Markets higher as US factory gate prices ease, PageGroup and Crest Nicholson warn, reports suggest Shein IPO plan faces hurdle

“The FTSE 100 made a solid enough start to the week on Monday but it may suffer from a lack of direction later given US markets are closed for Martin Luther King Day,” says AJ Bell Investment Director Russ Mould.

“An escalation of tensions in the Red Sea amid US and UK strikes on Houthi rebels raises the prospect of renewed inflationary pressures as the resulting disruption to global shipping pushes up freight costs. Oil prices continued to bubble but are below the $80 per barrel levels reached last week.

“There was some positive news on inflation on Friday thanks to an unexpected contraction in producer price inflation in the US – so called factory gate prices are often a leading indicator for consumer prices so this offers some encouragement.

“There was mixed performance and messaging from US banks as the latest earnings season across the Atlantic got underway – with some signs of stress in consumer debt.

“The jobs market is often a good barometer of economic conditions as firms hire when they’re feeling confident and retrench when times are tough – so PageGroup becoming the latest recruiter to warn on profit is a slight worry.

“This is a mild warning, suggesting the end of last year saw the outlook suffer significant deterioration. Profit is only expected to be slightly below previous guidance but the signs certainly weren’t encouraging in the final quarter of 2023. The company’s decision to let go a good chunk of its own workforce tells its own story.

“A modest move higher in PageGroup’s fees for temporary placements, alongside a big drop in fees for permanent positions, suggests companies are looking to retain some flexibility with staffing needs.”

Crest Nicholson

“While there may have been a break in the clouds looming over the housebuilding sector the latest update from Crest Nicholson shows life remains tough.

“Higher costs on a delayed project in Surrey and a legal claim linked to a fire at an apartment building in 2021 contribute to the company warning on profit for 2023. Helping to salve the pain for shareholders is a more encouraging outlook, which is lent credibility by a Rightmove survey showing an increase in asking prices at the start of the year.

“The company is seeing some encouraging signs in terms of enquiries but that is yet to translate to customer behaviour and the property market remains a fragile beast. There is hope, but as yet no guarantee, that the coming months will bring further reductions in mortgage costs as the Bank of England cuts rates.

“If it is to be a beneficiary of any improvement in the outlook, Crest Nicholson must put operational issues behind it.”

Shein

“If talk is true, Shein is trying to list on the US stock market and that certainly won’t be without its challenges. Reports suggest it is now seeking Beijing’s approval, which implies the listing process could be somewhat drawn out.

“Tensions are high between the US and China, meaning Shein is going to have to jump through many hoops if it stands a chance of achieving a US IPO. The clothing retailer has already come under pressure from US lawmakers to prove it does not use forced labour in the manufacture of its products. It has also been accused of copyright infringement.

“On the other side, Beijing has shown it will not tolerate Chinese companies listing in the US if they don’t follow the rules and protect data. Chinese ride-hailing group Didi Global was effectively forced to delist from New York for not towing the line.

“One might ask why Shein doesn’t just list in China where the flotation process would be more straightforward. However, it seems the retailer wants to be seen as a global business and what better accolade than having a listing in the US, where it might also achieve a premium valuation given its rapid growth. Listing in China would make the shares less appealing to Western investors, for fear there is less liquidity and transparency in terms of governance.

“Shein has been a disruptive force in fashion e-commerce, becoming one of the most popular platforms around the world in recent years. It is already doing deals with Western companies to strengthen its footprint, such as a partnership with the owner of Forever 21 in the US and buying Missguided from Frasers in the UK. It is now a household brand and demand could be strong for its shares if investors anticipate that it could be an even bigger business in the future.”

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