Fund managers gird for long trade war after FedEx slide

FedEx business touches several industries across the globe. (AFP)
Updated 22 September 2019

Fund managers gird for long trade war after FedEx slide

  • Shares of the shipping company tumbled 13% after it said it planned to cut costs

NEW YORK: A profit warning and muted outlook from package delivery company FedEx Corp. is prompting some high-profile fund managers to prepare for the trade war between the US and China to last longer than many had originally anticipated.

Shares of the shipping company, whose business is often seen as a proxy for growth in the global economy, tumbled 13 percent Wednesday, a day after it said it planned to ground some planes and cut costs due to the effects of the trade war between the world’s two largest economies.

“We were hopeful of a trade deal and some sort of return to normalcy and that has not taken place,” FedEx’s CEO, Frederick Smith, said on its earnings call.

Companies ranging from parts supplier O’Reilly Automotive to network gear maker Juniper Networks have said the trade war is weighing on their earnings. Yet investors have focused more on FedEx because the nature of its business touches several industries across the globe, including consumer spending.

An extended trade war could take the wind out of the sails of the rally in the S&P 500 benchmark index, which has advanced in line with expectations for an imminent breakthrough in the trade war. High-level talks between the two countries are expected to resume again in October. The conflict between the two countries could take a decade to resolve, White House economic adviser Larry Kudlow warned on Sept. 6.

As a result, fund managers are moving away from US industrials and technology companies that may be most affected by higher tariffs and instead are looking to pick up some out-of-favor companies and assets that offer long-term opportunities despite the trade war.

“It’s obvious that China will try to drag this out as long as it can and hope it disappears after the (2020 presidential) election,” said Brian Yacktman, whose YCG Enhanced Fund is up nearly 31 percent for the year to date.

Yacktman is moving more into the shares of European luxury goods makers such as Kering SA, whose brands include Gucci and Botegga Veneta, that have pricing power but have fallen on concerns about a slowdown in the Chinese economy. 

Shares of Kering are up 12.4 percent for the year to date, including a 10 percent drop over the last three months.

“These are companies that can just pass tariffs on because people want to buy the status symbol,” he said.

Emily Roland, co-chief investment strategist at John Hancock Investment Management, said her firm has been increasing its “measures of protection” against an economic downturn caused in part by an escalating trade war. Despite a 20.1 percent gain in the sector this year, she said she still sees opportunities in utilities companies due in part to their above-average dividend yields and growth potential.

“Rather than reacting and getting whipsawed by the sudden shifts in sentiment, we believe that investors can create diversified portfolios that seek to minimize downside risks from the trade war, however long it may last,” she said.

Not all fund managers are convinced the trade war is here to stay. “We still think one way or another Trump will end it before the election,” said Lamar Villere, a portfolio manager at New Orleans-based Villere & Co.

As a result, he has been moving more assets into sectors such as semiconductors, an industry which will be included in $50 billion worth of goods that will be subject to 30 percent tariffs starting Oct. 1.

“The market is giving you opportunities because we think that this is more of a blip than anything else,” he said.

Emmanuel Roman, CEO at bond giant Pimco, said Thursday at the CNBC Institutional Investor Delivering Alpha Conference that he is seeing opportunities in emerging market bonds due to the pessimism from the trade war. “Obviously the big elephant in the room is the trade war with China and how it will resolve itself,” he said.

India probes Flipkart, Amazon discounts after retailers complain

Updated 15 October 2019

India probes Flipkart, Amazon discounts after retailers complain

  • Products on Amazon, Flipkart listed at steep discounts in sale
  • Trader groups allege firms violating foreign investment rules

NEW DELHI: The Indian government is looking into whether hefty discounts offered on Walmart-owned Flipkart and during their online festive sales violate foreign investment rules, a commerce ministry official told Reuters.
India introduced new rules in February aimed at protecting the 130 million people dependent on small-scale retail by deterring big online discounts. The rules forced e-commerce firms to tweak their business structures and drew criticism from the United States, straining trade ties between New Delhi and Washington.
While Amazon and Flipkart say they’ve complied with the federal rules, local trader groups say the two companies are violating them by burning money to offer discounts — of more than 50 percent in some cases — during the ongoing festive sales.
Reuters reviewed emails and internal training material from Flipkart showing the company is in some cases offering to reduce, or forfeit, its sales commission from sellers that offer discounts.
The commerce ministry official said the government was reviewing complaints and evidence filed by the Confederation of All India Traders (CAIT), a group representing some 70 million brick-and-mortar retailers, alleging Amazon and Flipkart were violating the foreign investment rules.
The official declined to comment on possible action, but executives from Amazon and Flipkart were summoned to meet commerce ministry officials last week to discuss the matter.
Flipkart in a statement said it had a “good meeting” with government officials and it was “deeply committed to doing business the right way in India.”
Amazon said it had an “open & transparent discussion” with officials and has a high bar for compliance.
Seeking to attract shoppers around the key Hindu festival of Diwali, both retailers have placed full-page advertisements in top national daily the Times of India to showcase discount offerings stretching from Samsung and Apple phones to clothing and diapers.
“Customers are going online because of the unbelievable discounts. Because of this sales at offline businesses are down 30 percent to 40 percent this month,” CAIT’s secretary general Praveen Khandelwal said.
Two emails received by Flipkart sellers in September, just days ahead of the inaugural phase of the festive sales, showed it offering to partly fund discounts.
The company would “burn” 3 percent of the discount if a seller lowered a product price by 15 percent, or 9 percent if the seller discounted by 30 percent, said one of the emails.
In training material posted on Flipkart’s restricted website for its sellers, seen by Reuters, the company asks them to prepare for the festive season by saying “nothing is bigger than this” and explaining how they can benefit by discounting products for Flipkart’s premium customers.
“We want to ensure that you fetch as much profit from it as possible ... whatever the discount you are offering, half of that will be reimbursed to you by Flipkart,” a post said.
A Flipkart source said the incentives were compliant with Indian regulations and were aimed at promoting sellers’ earnings by effectively reducing the commission they pay.
All India Online Vendors Association, whose 3,500 members sell products on various online platforms including Flipkart, in a statement said fewer than 100 of its members benefitted from Flipkart’s partial discount funding, giving some sellers an unfair advantage.