Trio of China issues sparks new global markets sell-off and United Utilities sets the stage for dividend review

“Global markets took a dive after China withdrew its GDP growth target, heightened tensions between the US and the Asian country, and Beijing planning to impose security law on Hong Kong,” says Russ Mould, Investment Director at AJ Bell.

“These three factors combined have created a new wave of fear among investors. China ditching its GDP growth target for the first time since 1990 is likely to cause turmoil on the commodities market amid question marks about natural resources demand for the rest of the year. Brent Crude oil prices slumped by more than 5% on the news and copper prices fell by 1.5%.

“Donald Trump continued to flex his muscles, threatening to sever what’s left of a relationship between the US and China after repeatedly criticising the latter for the global spread of coronavirus. Markets will be concerned how China plans to respond and what this will mean for trade and security.

“Investors were also asking how the national security law in Hong Kong would affect US/China relations. The actions will stoke fears of another wave of protests in the country and cause unwanted disruption at a time when the region is trying to get back on its feet after the coronavirus crisis.

“Industrials, utilities and consumer cyclical stocks were worst hit on Hong Kong’s Hang Seng index which itself fell by 5.7%.

“The FTSE 100 fell 1.9% to 5,904 with Prudential and HSBC, both with a large presence in Asia, among the biggest fallers. Royal Dutch Shell was also weak as a result of the falling oil price.

“US stocks were primed to open lower with pre-market indicative prices pointing to a 1.1% drop in the S&P 500.”

United Utilities

“Somehow you would expect a water company to have plenty of liquidity and United Utilities does have significant cash resources to see it through the current crisis.

“However, if investors were expecting the utilities sector to provide a copper-bottomed source of dividends there was a worrying hint in United Utilities’ latest results that might not be the case.

“A review of the dividend policy once there is a clearer picture of what a post-coronavirus world looks like doesn’t sound like good news for United Utilities’ shareholders and will prompt concern that another previously reliable and growing source of income is going down the drain.

“The company has already provisioned for bad debts, but the severe recession which is rapidly coming down the track could mean a larger number of customers cannot afford to pay their bills.”

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

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.