☀️☕️ Sheer Luxury. LVMH boss the World's Richest Person

09 December 2022

Happy Friday🎄!

📊 IN THE MARKETS

• HK relaxes, Beijing runs short, Less-red-hot US labour market

📝 FOCUS

• Super-Apps "R" Us

• Sheer Luxury. LVMH boss the World's Richest Person

• Multi-Billion$ Share Buybacks, ExxonMobil & MasterCard

📊 IN THE MARKETS

HK stocks closed up sharply on talk of Covid measure relaxation rumours once again... but this time for HK itself! A local news outlet reported authorities considering lifting the outdoor mask rule, reducing home quarantine time for close contacts and changing mandatory testing on arrival from nucleic acid (e.g. PCR) to a rapid test (e.g. ART). Pretty crazed trading ensued in the usual suspects such as airlines and the Macau casinos (and even beauty retailed SaSa, up 16%) bringing the total absolute percentage move so far this week to 11.5% based on Hang Seng Index closing levels (Mon +4.51%, Tues -0.40%, Weds -3.22% and Thurs +3.38%).

Meanwhile, Beijing is already running out of medical supplies in the face of a rapidly spreading outbreak, with some hospitals rationing ibuprofen and paracetamol. Stresses are building on limited resources just as authorities lift pandemic restrictions.

Perverse good news from the US is that more Americans may be struggling to find a job as the red-hot US labour market shows some signs of cooling. Continuing claims, which measure the number of Americans actively receiving unemployment aid increased to the highest level since February. New applicants for unemployment aid ("initial jobless claims") at 230,000 were in line with expectations and about the same as last week's.

📝 FOCUS

Super-Apps "R" Us

Microsoft is considering building a “super-app” to push further into consumer services, combining shopping, messaging, web search, news feeds and other services in an all-in-one app to emulate Tencent's WeChat. The aim is to compete with Apple and Google and boost its multibillion-dollar advertising business, Bing search and Teams messaging. (Bing?!)

Of course, MSFT's not alone. Uber, Spotify, PayPal, Snap and Jack Dorsey’s Block have plans too. Grab in South East Asia and Careem in the Middle East have budding wannabe super-apps built on their ride-hailing core. And in October, a certain Elon Musk said buying Twitter was an "accelerant" to building "X, the everything app."

Over in Indonesia, loss-making GoTo Gojek Tokopedia, dropped another 6.5% on Thursday to a new low of Rp100 per share. (The Indonesia Stock Exchange has a 7% daily "limit-down" rule.) GoTo is a real super app created in a 2021 merger between Indonesia’s two largest tech companies, ride-hailing giant Gojek and e-commerce marketplace Tokopedia. It raised US$1.1 billion in a blockbuster IPO in April at a US$28 billion valuation but has suffered as early investors passed on a secondary share offering ahead of its lock-up expiry. GoTo is down 70% from its Rp338 IPO price. (Loss-making Grab is down 75% in the 2 years since its SPAC IPO.)

Sheer Luxury. LVMH boss the World's Richest Person

Elon Musk is a Number Two. The Tesla CEO and owner of Twitter (Hellscape Version) has slipped down one slot in Forbes' entirely ridiculous yet compulsive reading "Real Time Billionaires" list. As it is updated every 5 minutes, he may make it back to being the world's richest person by the time you read this, but as of about 4pm GMT on Thursday, that title is held by the Chairman and CEO of luxury goods maker LVMH, Bernard Arnault, and his family.

Musk first made it to the number one spot just over a year ago, but his wealth, as per Forbes, came off when he bought Twitter using some of his Tesla stock, and then dropped more when the value of his remaining holdings in Tesla sank when the share price continued to slide (down 29% in the last 6 months alone.)

More interesting is who is in the #1 spot. LVMH Moët Hennessy Louis Vuitton is a French multinational luxury goods conglomerate, formed in 1987 with the merger of fashion house Louis Vuitton and Moët Hennessy, a champagne producer. In 1989, Arnault bought a majority stake and axed the Louis Vuitton president from his family company, earning Arnault the nickname “The Wolf in Cashmere”. It is now the world's largest luxury goods company, with over 60 prestigious brands in its portfolio including Louis Vuitton, Moët & Chandon, Hennessy, Dior, TAG Heuer, Dom Perignon and Sephora, among others.

Recent earnings results have supported the idea that while nothing is completely recession-proof, the luxury sector seems to come close, at least for this cycle. “Luxury is not a proxy for the general economy,” LVMH said. Despite recessions, inflation and the lockdowns in China (which had been a massive growth driver of the sector for the last decade), LVMH third quarter sales were up 19% year-on-year with rivals Kering (owner of Gucci) and Hermès doing similarly well with growth of 14% and 24%.

Strong performances by such names compared to the sluggishness of Brexit-weakened domestic UK listings led luxury-heavy Paris to overtake London last month as the largest stock market in Europe.

Multi-Billion$ Share Buybacks, ExxonMobil & MasterCard

Oil Supermajor ExxonMobil (XOM) announced it would expand its share buyback🎓 programme to US$50 billion in the three years to 2024, an increase from the current US$30 billion programme due to end in 2023. Basically, Exxon’s distributing the (arguably excess) record high it's making from war-elevated energy prices to its shareholders rather than reinvesting more into the business, as President Biden's been asking for. To be fair, it will also spend US$23-25 billion on energy projects next year from US$22 billion this year, but it's well below the US$30-35 billion a year planned pre-pandemic (which caused massive losses.)

Meanwhile, credit card scheme giant Mastercard (MA) boosted its quarterly dividend and announced a new US$9 billion share buyback🎓 programme, which will kick in once the US$4.1 billion remaining of its current US$8 billion programme is done. (In the first nine months of 2022, MA bought back 18.3 million shares worth US$6.3 billion and also paid dividends worth US$1.4 billion).

Friday Mini Explainer: MasterCard (like Visa, "a credit card scheme")

• Mastercard is a payment processing company that provides a wide range of services, including credit and debit card processing. It operates on a business model where it earns revenue by charging fees to its customers (financial institutions that issue credit and debit cards using the Mastercard network as well as businesses and other organisations that accept payment cards)

• These fees are typically a percentage of the total transaction value and not from late fees and interest charges on accounts. These fees are called the merchant discount rate (MDR) or the interchange rate and typically range from 1% to 3%.

• Mastercard does not directly lose money from credit card defaults. The card issuer is typically responsible for trying to recover the outstanding balance from the cardholder. Mastercard does not directly bear any loss but may be impacted indirectly through reduced fees and revenue from the issuer.

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