Before the Bell: Hong Kong Surges

Western markets look sluggish and drift lower, while gains are coming from the East. Baidu is up 8% this morning.

Wall Street showed little appetite for risk on the first trading day of the final week of the year. Both the S&P 500 (-0.4%) and the Nasdaq (-0.5%) lost ground. Even Nvidia (-1.2%) took a step back after a long winning streak. Walmart (+0.7%), Starbucks (+0.6%), The Walt Disney Company (+0.6%) and Nike (+0.5%) were among the few notable gainers. Silver miner Pan American Silver (-5.7%) failed to benefit from Friday’s sharp rise in the silver price and followed the metal lower again yesterday. European markets did manage to close in positive territory, but with an average gain of just 0.1%, the move was barely noticeable. In Brussels, the Bel20 (+0.3%) was led by real estate investment trusts Montea (+1.6%), Cofinimmo (+1.5%) and WDP (+1.5%). Outside the index, CMB.Tech gained 2% after the shipping group sold an older bulk carrier for 29 million dollar. Even more striking was the rise in Ion Beam Applications (+4.6%). Agfa-Gevaert (-6.3%) fell sharply. A financial newspaper attributed the drop to higher silver prices, but silver actually declined. The real reason lies in last week’s unjustifiably strong rally in the stock.

Asian markets present a mixed picture this morning. In Japan, equities are down an average of 0.3%, while Hong Kong is posting a strong gain of around 1%. Baidu (+8%), often described as the Chinese equivalent of Google, is by far the biggest gainer in the index. PetroChina (+3.3%), Geely Automobile (+3.1%) and Xiaomi (+2.3%) are also enjoying a strong session. Toy maker Pop Mart (-4.8%) is the biggest loser in the Hang Seng Index.

The dividend of war

According to the Financial Times, the European defence sector paid out around 5 billion dollar to shareholders this year. “That’s only logical,” you might think. The industry is making money hand over fist, and shareholders are benefiting. That is true, but there is a contradiction here. While some contracts with defence companies have already been signed and certain governments have started placing orders, the bulk of European defence spending is still to come, partly driven by Donald Trump. If so much more demand lies ahead, why are these companies not investing more aggressively themselves? The cash now being paid out could potentially generate far greater returns for shareholders if reinvested. I do not invest in the sector, so strictly speaking it is none of my business—but I cannot help wondering. Is this truly a growth sector, or not? Perhaps shareholders realise the growth is only temporary and therefore demand high dividends while they can. Or worse, perhaps these companies prefer to load up on debt rather than invest their own equity. Again, it is not my sector. They can do as they please.

Executives should not speak only the language of Wall Street

After activist investor Elliott Management, Chip Wilson, the founder of Lululemon, has now also stepped in to challenge the management and board of “his” company. Wilson still owns a stake of 8.4% in the yoga apparel maker and is calling for the appointment of three new board members: Marc Maurer, former co-CEO of On Holding; Laura Gentile, former marketing director at ESPN; and Eric Hirshberg, former executive at Activision. “Lululemon needs visionary creative leadership in order to thrive,” Wilson argues, suggesting that this is precisely what the current board lacks. Meanwhile, newcomers such as Skims, backed by Kim Kardashian, are steadily taking market share. Over the past year, Lululemon’s share price has fallen by around 45%. “Management speaks the language of Wall Street,” Wilson adds, “but they need to focus on product innovation.” The question now is whether the arrival of an activist investor and the founder’s criticism can spark a revival at Lululemon.

Did you know…

that Lululemon was founded in 1998 by Chip Wilson in Vancouver, Canada? The maker of high-quality yoga leggings opened its first store in 2000. Today, the brand operates 767 stores worldwide and is well established in North America, Europe and China.

This article was translated from Dutch and was originally published on Spaarvarkens.be.