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“European and Asia markets managed to escape the hangover that US investors are now nursing after last night’s big tech sell-off on Wall Street,” says AJ Bell Investment Director Russ Mould.
“The Nasdaq fell nearly 2.5% as investors dumped names like Apple and Amazon amid growing concerns about rising inflation expectations, the direction of interest rates and how that would put tech stock valuations into question.
“Tech-heavy investment trust Scottish Mortgage has fallen by more than 12% in just over a week and was among the FTSE 100’s worst performers on Tuesday along with other tech names Ocado and Avast.
“However, the FTSE 100 index managed to squeeze out small gains thanks to strength among names that should benefit from a reopening of the UK and global economy.
“The top three risers were Rolls-Royce, International Consolidated Airlines and Melrose, all of whom are connected to the aviation sector which finally has brighter prospects given the rapid covid vaccine rollout and the UK’s roadmap to coming out of lockdown.
“The FTSE 100 rose 0.2% to 6,627 while the Paris CAC 40 index nudged up 0.1%. Germany’s DAX slipped 0.5% with tech and consumer non-cyclicals weighing on the index.”
HSBC
“HSBC is finally singing the song that investors want to hear – a clear focus on Asia where growth opportunities are plentiful and a higher dividend than expected by the market. However, a bit of the chorus is still missing, namely the lack of solid updates on exiting France and the US. It just says that talks are ongoing regarding a possible French sale and that it is looking at strategic options for the US.
“There is also some disappointment in the bank reducing its guidance for future returns. As a result of the pandemic affecting its operating environment in 2020, HSBC says it can no longer expected to achieve its 10% to 12% return on average tangible equity target in 2022. Instead, the guidance is for a return of 10% or more in the medium term.
“Banks are slow moving beasts and one cannot expect big strategic shifts to all happen at once. The fact that HSBC has chosen to prioritise Asia should be good enough for someone taking a view about the bank’s prospects in the medium term. It’s a decision that should have been made a long time ago.”
InterContinental Hotels
“Results from InterContinental Hotels were pretty dire but ultimately not worse than the market had been anticipating given the obvious covid-19 impact.
“The owner of the Holiday Inn and Crowne Plaza brands sounded a cautiously positive tone on the outlook, not unfairly pointing out the hotel industry has recovered from big crises in the past.
“The company’s franchise model arguably makes it more resilient and flexible than some of its peers. InterContinental only owns a handful of hotels and focuses instead on franchising and managing premises.
“As well as generating premium margins, the asset light model has, over the years, enabled it to grow quickly with limited capital investment and to focus on building preferred brands based on guests’ needs, and on strong delivery systems, such as its branded hotel websites and call centres.
“This should help it coming out of the covid pandemic and has already supported strong cash management, helping to protect its balance sheet and, impressively, allowing to maintain at least some level of investment in future growth.
“Clearly the company has had to support the owners of its hotels through the period, offering discounts, payment flexibility, allowing renovations to be delayed and relaxing brand standards.
“The big question for InterContinental is whether the business can return to growth in the absence of a full recovery in international travel and, crucially, with a likely drop in business trips for at least the medium term.”
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