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In this week’s Commercial Awareness update we discuss stuttering growth in Asia, the landmark Opioid settlement, strong results for ASOS, how the big banks are doing and why there could be trouble ahead for Netflix.
Growth in Asia
There has been a key focus on the growth of key economies over the past few months, with many experts looking for signs that there could be a downturn on the way. In recent weeks, there’s been a particular focus on both India’s and China’s Gross Domestic Product (GDP) - the output in the economy.
The International Monetary Fund (IMF) in its latest World Economic Outlook believe India’s economy will grow 6.1% in 2019. This sounds like good news, but in context it is a worry for the country. Last year, the economy grew by 6.8% and in April of this year, it was forecast that the economy would grow by 7.3%. Dropping the prediction from 7.3% to 6.1% in the space of six months is significant. India has been struggling with weaknesses in their automotive sector, real estate and some parts of their financial services. The government has recently started a course of increasing the supply of cash in the economy, as well as reducing corporation tax to encourage activity.
China is in a similar position, as the country’s economy slowed to its lowest level since 1992. In Q3, its GDP grew by just 6%, compared to 6.2% in the previous quarter. These figures suggest the 18-month trade war with the US is taking its toll on their economy. Many commentators worry about the global economy and figures like this which hint at an economic slowdown. However, as many have pointed out, it potentially is a natural thing which can’t be helped. The Chinese economy has grown rapidly for many years, which cannot continue on the same scale. China gained from huge advancements in technology and infrastructure in recent decades, which does continue, but it won’t have the same impact now the country has already made significant strides forward.
Questions to ask yourself… Is there a better indicator of future economic performance than GDP? What can the IMF do to stimulate the global economy?
US Opioid epidemic
Last month, we covered the opioid settlement and local authorities suing major pharmaceutical companies for their alleged roles in mis-selling drugs and consequent deaths which have been linked to addiction. This week the first trial on the matter was expected to start in Cleveland, Ohio, but four drug companies reached a last-ditch deal to avoid the trial. The firms will pay two Ohio counties $260 million, but in this agreement there was no admission of guilt over the drug which has been linked to 400,000 deaths from overdose in the US between 1997 and 2007. Three American drug companies, McKesson Corp, Cardinal Health and AmerisourceBergen Corp will pay $215 million of the total, whereas Israel based firm, Teva is paying $20 million and contributing $25 million worth of medication.
This isn’t the first deal which has been reached over the over-use of Opioids, and it looks like it won’t be the last. There are nearly 3,000 cities across the US involved and on Friday four state attorneys general were unable to reach a $48 billion settlement with four companies, which spanned across different states. Earlier in the week, when $18 billion was being proposed, the different states and cities involved in the talks were worried they wouldn’t receive enough of a settlement. At $48 billion, these worries still exist, but also the companies may not be willing to settle at this amount.
Question to ask yourself… What more can be done to ensure potentially harmful medication isn't so readily prescribed?
Pick of the financial results
A number of high-profile companies released results last week which piqued the interest of the markets. Here’s our summary of each.
Shares in Netflix jumped by 8% in early trading on Thursday after the company announced impressive results on Wednesday evening. However, investors did express concerns over the future as subscribers’ numbers didn’t hit expectations. Revenue grew by 31% year-on-year to $5.25 billion in the last quarter and they were more profitable than analysts expected. Even though subscriber numbers were down, international (non-US) subscriber jumps did beat expectations. Investors will be pleased with this result but increasing competition from Disney and Apple are likely to be playing on the company’s mind coming into the next quarter.
ASOS shares also rose this week after they announced results which were significantly better than their previous few quarters. The firm’s profits dropped 68% during the full year to 31st August, after costs rose and increased competition took its toll. The share price has dropped over 50% in the last year, but investors hope they can draw a line under it with this quarters improved results. There was a 13% uplift in sales to £2.73 billion, with animal print and satin proving particularly popular in the quarter.
A number of the big banks announced their results over the last week. JP Morgan Chase beat market expectations for both profit and revenue, which was largely due to trading bonds, currency and commodities. Goldman Sachs did less well as their investment banking profits dipped. Their share price was down 1.9% as a result.
Citigroup and Morgan Stanley both beat market expectations last quarter, with the former seeing strong revenues in its fixed-income, currency and commodities trading (like J.P. Morgan). They have also seen higher levels of activity from their corporate clients. However, like with many banks, they had weak income from interest - with interest rates low, they can make less money from loans. Morgan Stanley enjoyed strong revenue results in its wealth and investment management divisions, which have been a key focus for the firm over the past year.
Questions to ask yourself… What can Netflix do to stay ahead of the competition? Where should banks be focusing their efforts?