Market Updates

08/10/18
Chinese Monopoly on Computer and Phone Manufacturing Poses a Risk to Tech Stocks
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Last week saw major exposés from the shadowy world of espionage. Much of the news has focused on details of the Russian operation to poison former
agent Sergei Skripal with a deadly nerve agent, this spy novel type attack has overshadowed the far more serious cyber security threats that were also
disclosed. The most disturbing is the news that Chinese intelligence agencies infiltrated several factories making computer components and managed
to install chips on motherboards that ended up in secure servers that were installed in US Navy warships, the CIA, the Department of Defence and a
number of other sensitive government agencies as well as in corporations such as Apple and Amazon.

That 90 per cent of PCs and 70 per cent of all mobiles phones are ultimately made in China shows how vulnerable the global supply chain is to an attack
of this nature. While the hack is certainly audacious, it is unlikely to be unique. Silicon Valley has long been accused of cooperating with US intelligence
agencies. Tech stocks sold off heavily on the revelations, but they will no doubt soon be forgotten. The risks these stories highlight should not be.

Car Manufacturing: Aston Martin Stutters on London Debut
This week saw the trade war start to affect Tesla. The new tariffs imposed by China meant that imports of Tesla cars were now subject to a 40 per cent tariff. In comparison, other non-US cars are subjected to a 15 per cent tariff. In a bid to reduce costs, the company is looking to speed up the construction process for its Shanghai factory. Also, this week Tesla’s share price sharply rebounded following a 12 per cent loss in the previous week after swiftly settling fraud charges. The SEC bought forward charges of impropriety after tweets by the chairman discussing plans to take the company private saw an increase in share price following the announcement in August.

Elsewhere, Aston Martin’s debut stuttered in the London trading market. Share prices opened on the morning at £19. The share price rose slightly after the opening bell to £19.15 before dropping, dipping as low as £17.75 on Wednesday. Overall, the current market capitalisation remains below the requirements to be included in the FTSE 100 Index.

Global Bonds: Sovereign Bonds Selloff Continues
The US Sovereign bond sell-off continued this week, this time due to the latest positive service sector growth. The Institute of Supply announced the non-manufacturing index rose to 61.6 for the month of September a gain of 3.5 from the previous month.

A reading above 50 is considered to indicate service growth. The US ten-year yield rose to 3.2 per cent and the two-year yield also increased.

Other regions were also affected by the US economic optimism, the German bund yields were the highest recorded since May. Some Eurozone countries also recorded yields rising with France up to 0.87 per cent and Spain’s 10-year yield also up. However, Italy’s yields were up earlier this week for different reasons as the government borrowing costs increased. As a result, the spread between the Italy’s 10-year bond and the German bund used as a measure of investor confidence widened. The debt load for the country is one of the highest recorded for the Eurozone countries currently standing at 130% per cent of GDP. The Italian government plans to combat this by aiming to reduce the deficit to 2.2 per cent of the GDP in 2020.

These contents are prepared for general information only. It does not contain all of the information which an investor may require in order to make an investment decision. If you are unsure whether this is a suitable investment you should speak to your financial adviser. This information is not guaranteed to be correct, complete, or accurate. Data Sourced from FE Analytics, and Bloomberg Finance LP
Author: FE Analytics