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14 February 2022

Market Round-Up

The Winter Olympics have given Chinese residents a whole new money-making realm, following a surge in demand for souvenirs. Local enthusiasm for this year’s event has been muted by COVID-19 regulations and the country’s limited expectations of medal success but residents are queuing overnight outside the Beijing Arts and Crafts mall, hoping to get their hands on merchandise in a bid to resell it later for a huge profit. The most popular has been the dolls picturing the official mascot, a panda bear named Bing Dwen Dwen. One shopper has reported that after waiting overnight he bought two of the dolls for Rmb192 each, equivalent to US$30, and rapidly resold one for Rmb1000 (US$157). He was confident that the other would sell for a similar high price within the next 24 hours.

Despite acting as a source of income to those willing to wait in line, this speculation is highlighting the rich-poor divide which President Zi Jinping has been attempting to address with his drive for common prosperity. More wealthy speculators and collectors are simply hiring people to stand in line for them; in one case, a government official paid Wang Micheng, a former estate agent who was forced to leave the industry following a sharp downturn in house sales, a hefty amount to queue for 12 hours to buy one single souvenir. Speculators have been paying an hourly rate, on average, of Rmb80 for placeholders such as Wang.

The Lunar New Year is having a large play in the huge surge in popularity, in which the Olympics opened on the 4th of February, which was four days into the week-long holiday. It is tradition that people exchange gifts such as expensive bottles of Moutai, a popular liquor. The concurrence of the Olympics with the celebration has changed the theme of gifts this year, with the Bing Dwen Dwen doll being the most popular, and most appreciated. It is not only the gift exchange that is being shaped by the tradition, but also the clothes worn by attendees at the opening ceremony. Attendees paraded in down jackets and tiger-shaped hats and shoes in celebration of the Year of the Tiger which has bolstered sales of down jackets across the country, as evidenced by the 203% increase in sales for Chinese sportswear brand Anta.

Moving from the carbon-neutral Games to the global energy crisis, utility companies are a hot topic in the UK. The energy crunch caused by supply constraints of oil and gas which has caused prices to surge has benefitted BP, which recorded its highest profits in eight years. Profits hit £9.5bn at the end of last year as oil prices pushed above US$90. Energy companies have received criticism that they are making a profit off households’ fuel poverty, prompting calls for a windfall tax on UK energy companies. A windfall tax is a one-off tax imposed by a government on a company that has benefitted from an event that they were not responsible for. This would act to support families who are struggling to pay their energy bills and, if implemented, would be in addition to the recently announced Energy Bills Rebate, which will provide around 28 million households with an upfront discount on their bills worth £200, and the £150 council tax rebate due to be paid in April.

BP’s chief executive Bernard Looney has hit back at these calls, however, arguing that such a tax would deter investment and delay Britain’s goal to achieve net zero carbon emissions by 2050. BP’s plans include continuing to invest in its natural gas business while simultaneously increasing spending on renewable energy with a hope that it will make up 40% of total expenditure by 2025. Despite BP’s profits being driven by the fossil fuel arm of the business, the government has dismissed the idea of an increase in tax for oil and gas companies. With BP’s commitment to cut oil and gas production by 40% by 2030 and produce an additional 50GW of renewable energy, the tax move is deemed too much of a risk in curbing the net zero path in the wrong direction. Big profits will be needed to fund the transition.

Shell has also demonstrated its commitment to Britain’s Build Back Greener project as it was appointed to provide the carbon capture technology for a major Humber decarbonisation project. It will supply technology to the industrial area at the south of the Humber that aims to capture millions of tonnes of carbon dioxide (CO2) from the VPI Immingham combined heat and power station. The technology works by capturing over 95% of the CO2 in the gas which then gets compressed, transported, and safely stored in geological structures deep under the seabed. It is a government-backed multibillion-pound project known as Humber Zero which should capture eight billion tonnes of carbon from industrial processes and advance Britain, and in particular the Yorkshire area, toward its 2050 net zero ambitions.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
Market Round-Up
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