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Gucci joins peers in defying China fears

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Luxury goods group Kering joined competitors in defying concerns of waning demand in China, as momentum at its powerhouse Gucci slowed slightly in the fourth quarter but still outperformed most other fashion brands.

Like its peers, Paris-based Kering, which also owns Saint Laurent and Balenciaga, has been under scrutiny over whether demand among Chinese shoppers, who account for over a third of industry sales, can hold up.

The firm’s comparable sales rose a higher-than-expected 24.2 percent in the October to December period, when stripping out currency swings and acquisitions, and were up 24.5 percent on a reported basis to 3.8 billion euros ($4.29 billion).

“Sales among our Chinese clientele remained very dynamic in the fourth quarter, even with a high comparative base,” Financial Director Jean-Marc Duplaix told journalists on Tuesday, adding that spending by these customers had shifted from overseas to mainland China.

The group’s Italian label Gucci held on to its crown as one of the luxury world’s fastest-growing brands. Comparable sales growth of 28.1 percent in the fourth quarter marked a slowdown from the previous three months but far exceeded that of rivals, while margins reached a record 39.5 percent in 2018.

Gucci’s might – with annual sales of 8.3 billion euros putting it neck and neck with privately-owned Chanel behind LVMH’s Louis Vuitton as the top luxury label by sales – has raised questions about Kering’s reliance on the label.

It accounted for over 80 percent of the group’s operating income in 2018.

Gucci has also been in the spotlight over a tax investigation in Italy, where Kering faces a potential 1.4 billion euro bill for allegedly avoiding tax on earnings generated by the Italian label and billed to a Swiss subsidiary.

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Analysts on Shanghai’s new Nasdaq-style STAR tech board

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People take pictures during an opening ceremony of the Shanghai Stock Exchange’s Sci-Tech Innovation Board in Shanghai on July 22, 2019.

STR | AFP | Getty Images

The first tranche of companies on China’s new Nasdaq-style tech board started trading on Monday, with all the stocks seeing gains on their public debut.

Still, some are cautioning against jumping quickly into the action.

“I think this market, it needs to … basically take a little bit of patience to develop,” Eugene Qian, president of UBS Securities, told CNBC’s “Squawk Box” on Monday.

“For anything new in China, there is a tendency for retail-oriented markets like China to overly speculate,” Qian said, adding that this would contribute to a “short-term bubble” that may not be sustainable.

The new technology board — the Science and Technology Innovation Board, or “STAR Market,” which is operated by the Shanghai Stock Exchange — comes as China attempts to address investor concerns about market volatility and the lack of governance.

It’s easier for firms to go public in the new STAR Market tech board, compared to listing on the Shanghai A-share market, as companies need to go through a registration instead of waiting for regulatory approval which could take longer.

“I think a lot of people are going to really be behind this,” Gareth Nicholson, head of fixed income at Bank of Singapore, told CNBC on Monday. “This is gonna be pretty wild.”

‘Focus on individual companies’

Prior to their public debut, initial public offerings on the STAR Market saw an average over-subscription of about 1,700 times among retail investors, Reuters reported. In the first five days of a company’s listing, no daily price limits will be placed. But after that period, a stock will be allowed to trade within a 20% range.

In comparison, listings elsewhere in China are subjected to a gain cap of 44% on their debut and limited to a 10% gain or loss thereafter.

J.P. Morgan’s Chief China Economist and Head of China Equity Strategy, Haibin Zhu, urged investors to “focus on individual companies.”

“You need to focus on the sector and the company itself, and make sure that they have decent or stable earnings outlook,” Zhu told CNBC’s “Street Signs” on Monday.

With the new stock board primarily aimed at domestic investors, opportunities for foreign participation will be minimal for now.

UBS Securities’ Qian said foreign investors are likely to watch “with a lot of interest” but will likely “wait a little bit out.”

Many of the stocks listed on the new tech board are similar to those on the Chinext in Shenzhen, which is already included by MSCI in its indexes, Qian said.

“I think there will be opportunities for long-term, value-driven … international investors later on,” he said.

Looking ahead, the Shanghai Stock Exchange said an index tracking the STAR Market will be launched on the 11th trading day following the debut of the 30th company on the board.

— CNBC’s Evelyn Cheng, Yen Nee Lee and Reuters contributed to this report.

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Australia grounds Mahindra’s GA8 planes after Swedish crash

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The Airvan 8 utility aircraft manufactured by Mahindra Aerospace stands on display in front of the company’s booth in Geelong, Australia, on Tuesday, Feb. 24, 2015.

Mark Dadswell | Bloomberg | Getty Images

Australia’s air safety regulator has grounded operations of a small aircraft manufactured by Mahindra Aerospace for up to 15 days following a crash in Sweden that killed nine people earlier this month.

The Civil Aviation Safety Authority (CASA) said it had suspended operations of all GippsAero GA8 planes in Australia and all Australian-registered GA8 planes flying overseas from July 20 through Aug 3.

The GA8 single-engine aircraft, built in Australia by GippsAero, is typically used for skydiving, tourism, air patrols, medical evacuations and humanitarian missions in remote locations, according to Mahindra Aerospace’s website.

There are 228 GA8 planes worldwide, 63 of which are registered in Australia, CASA said.

Mahindra Aerospace, a unit of India’s Mahindra and Mahindra Ltd, said CASA’s move was precautionary during the preliminary investigation in Sweden, with which GippsAero was cooperating.

“The preliminary investigation has not identified the root cause of the incident,” GippsAero Chief Executive Keith Douglas said in an emailed statement.

Nine Swedes were killed when a GA8, dubbed the Airvan 8, crashed during a skydiving trip near Umea in northern Sweden on July 14.

CASA said it has been working closely with Swedish authorities and the European Union Aviation Safety Agency (EASA), which has also issued an emergency directive to European GA8 aircraft owners and operators to suspend operations except for ferry flights.

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Cambodia denies deal to allow armed Chinese forces at its naval base

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China’s Defence Minister Wei Fenghe (right) shakes hands with Cambodia’s Defence Minister Tea Banh during a visit to a military exhibition in Phnom Penh on June 19, 2018.

Tang Chhin Sothy | AFP | Getty Images

China will be able to place armed forces at a Cambodian naval base under a secret agreement the two nations have reached, the Wall Street Journal reported on Sunday, although Cambodian officials denied such a deal had been struck.

The agreement, reached this spring but not made public, gives China exclusive access to part of Cambodia’s Ream Naval Base on the Gulf of Thailand, the Journal reported, citing U.S. and allied officials familiar with the matter.

Such an arrangement would give China an enhanced ability to assert contested territorial claims and economic interests in the South China Sea, challenging U.S. allies in Southeast Asia. Chinese and Cambodian officials denied such an agreement existed, according to the Journal.

“This is the worst-ever made up news against Cambodia,” Cambodian Prime Minister Hun Sen told the pro-government news site Fresh News on Monday.

“No such thing could happen because hosting foreign military bases is against the Cambodian constitution,” he said.

Cambodian defense ministry spokesman Chhum Socheat told Reuters the report was “made up and baseless”.

China, Hun Sen’s strongest regional ally, has poured billions of dollars in development assistance and loans into Cambodia through bilateral frameworks and China’s Belt and Road initiative.

The initiative, unveiled by Chinese President Xi Jinping in 2013, aims to bolster a sprawling network of land and sea links with Southeast Asia, Central Asia, the Middle East, Europe and Africa.

It has attracted a flood of Chinese commercial ventures in Cambodia, including casinos and special economic zones.

The U.S. Defense Department suggested earlier this month China may be attempting to gain a military foothold in Cambodia in a letter to Cambodia asking why the nation had turned down an offer to repair a naval base.

The State Department urged Cambodia in a statement to reject such an arrangement, saying the nation had a “constitutional commitment to its people to pursue an independent foreign policy.”

“We are concerned that any steps by the Cambodian government to invite a foreign military presence in Cambodia would threaten the coherence and centrality of the Association of Southeast Asian Nations (ASEAN) in coordinating regional developments, and disturb peace and stability in Southeast Asia,” the statement said.

Cambodia denied reports last November that Beijing had been lobbying the Southeast Asian country since 2017 for a naval base that could host frigates, destroyers and other vessels of China’s People’s Liberation Army Navy.

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