TheChek News Flow

Markets mixed as many factories remain closed while staff at tech companies work from home

China officially returned to work on Monday but any hopes its stricken economy would quickly come back to life were disappointed as businesses extended holidays or work-from-home arrangements to contain the deadly coronavirus outbreak.

In Beijing, white-collar workers trickled back into office buildings while authorities in Shanghai encouraged people to continue working from home. In areas that had not extended the February 10 deadline to return to work, many factories and businesses remained closed for lack of manpower.

“Most of our factory’s workers are from Henan province. They haven’t returned yet,” said one worker at an electronics components factory in Suzhou, near Shanghai, who asked not to be named. 

Authorities said they were still reviewing a request by Foxconn, the maker of Apple’s iPhone and China’s largest employer, to restart production in Shenzhen, near Hong Kong, and Zhengzhou, a city in Henan province about 500km from Wuhan, the centre of the outbreak. 

Other Chinese tech titans such as ByteDance, Tencent, Alibaba and Meituan have extended their work from home policies for at least another week.

China’s supreme decision-making body, the State Council, is pushing to get the world’s second-largest economy back to work and avoid prolonging the shutdown, which started more than three weeks ago.

The total number of confirmed cases in China rose to more than 40,000 on Monday, according to the National Health Commission, and the country’s death toll climbed to 908, the vast majority of whom were in Hubei province, the centre of the outbreak. 

There have now been nearly five times as many coronavirus infections in China as there were during the Sars outbreak in 2002-2003, which knocked quarterly economic growth down by two percentage points. Many economists have forecast the coronavirus could have a greater impact on growth than Sars.

Markets were mixed on Monday with China’s CSI 300 up 0.3 per cent and Hong Kong’s Hang Seng index down 0.6 per cent. Tokyo’s Topix dropped 0.72 per cent while Sydney’s S&P/ASX 200 fell 0.14 per cent.

The Australian dollar, which investors view as a proxy for China’s economy, rose 0.5 per cent to almost $0.67. But it was still down 4.6 per cent in the year to date and remained close to a decade-long low.

China’s National Bureau of Statistics said on Monday that consumer price inflation for January increased 5.4 per cent year-on-year, higher than most economists had forecast, in part because of hoarding as the epidemic gathered pace in mid-January.

In a research note, economists at Barclays said they expected “sustained upward [pressure] on the headline rate from food and healthcare, especially if the outbreak persists longer and disrupts production more severely than expected”.

The lukewarm response from the markets to China’s reopening came as many local governments continued to restrict the movement of their workers.

In Shenzhen, officials from the local ministry of industry said they were reviewing Foxconn’s procedures for restarting production. The plant must check workers’ temperatures at least twice a day, disinfect daily and take other epidemic prevention measures, the ministry said. Foxconn told workers at its Zhengzhou plant to wait for a message from human resources before returning to work, according to a message seen by the Financial Times.

The southern industrial city of Zhongshan, near Macau, strengthened its quarantine measures on Saturday by allowing only one member of each family to leave their home to buy supplies every two days.

Some factories were allowed to return to work in the city provided they locked down their work areas and limited contact with the outside. Other major cities, including Wenzhou, Hangzhou and Xi’an have taken similar measures. 

Chongqing permitted local workers to return to their offices but asked outsiders to stay in self-quarantine.

Even at factories able to resume work, the complex and geographically dispersed nature of supply chains meant they would face difficulties getting raw materials and components they needed.

Hubei province, where up to 59m people remain under quarantine, hosts much of China’s optical and laser production. Its shutdown, which could drag on for weeks or even months, posed problems for carmakers and factories producing medical devices, aircraft, machine tools and other goods, according to a report from Ping An Securities. 

Schools across China remain closed. Nearly all provinces have delayed resuming classes at primary, secondary schools and universities until February 16 at the earliest.

Healthcare group says it has received takeover interest from KKR and GK Investment

NMC Health’s founder BR Shetty and fellow controlling shareholder Khalifa al-Muhairi have been forced to step back from the board of the company after revealing that their shareholdings have been reported incorrectly to the market.

The healthcare group said that non-executive chairman BR Shetty is carrying out a legal review to verify his stake in the group.

This, it said, suggests that the holdings of Mr Shetty and his two Emirati partners, Saeed al-Qebaisi and his relative Mr Muhairi, “have been incorrectly reported historically to the company and the market”.

Mr Shetty, co-chairman, and Mr Muhairi will “absent themselves from further board discussions until clarification of these matters”, it added, “pending a board decision about their ongoing roles as directors of the company”.

The company on Monday said it has received takeover interest from US buyout group KKR and Swiss-based GK Investment. The company said that “no proposal has been made by either and there have been no discussions as to the terms of any possible offer”. KKR declined to comment.

The company said that it had not been aware of a memorandum of understanding that led to a company owned by Mr Shetty holding shares on behalf of the other two controlling investors.

The board said that it was “urgently seeking clarity from each of these shareholders” and “repeated its request for clarity” from each of the shareholders in relation to the number of shares owned by them that are pledged or used as security.

Shares in the group rose about 15 per cent on Monday in early London trading.

NMC said Mr Shetty’s BRS Ventures had been holding 20m shares for Messrs Qebaisi and Muhairi, pursuant to a memorandum of understanding from May 2017. Some of those shares were transferred to other banks and may have security attached to them.

If the legal review shows that the shares belong to his Emirati partners, and not Mr Shetty, then he and his family’s holdings would be reduced by 9.6 per cent.

“Mr Shetty and his advisers are investigating the details of and the legal basis of these possible transfers and security arrangements,” the company said.

NMC has been attacked by US short seller Muddy Waters, which has raised questions over its finances and management. Before the short seller report in December, Mr Shetty owned around 15 per cent as one of the three individuals who control NMC, alongside Mr Qebaisi with 17.4 per cent and Mr Muhairi with 15 per cent. Both have sold down their stakes in the past month however at a deep discount to cover debts linked to their stock.

The disclosure of incorrect reporting of shareholdings comes after a torrid two months for NMC, the healthcare group founded by Mr Shetty in 1975.

Shares are down 73 per cent since the Muddy Waters report in December. NMC, which denied the claims, has appointed former FBI director Louis Freeh to investigate the allegations.

Mr Shetty has also seen the value of his other main business, Finablr, fall by 67 per cent over the same period. The financial services group has a similar shareholder base to NMC and its share price decline was aggravated by a ransomware attack on its Travelex currency business over the new year.

The outerwear brand generates about a fifth of its revenue from Asia.

NEW YORK, United States — Canada Goose Holdings Inc, on Friday forecast a hit to its annual profit and revenue as the coronavirus outbreak in China hurt store traffic, sending shares of the luxury apparel maker down 5 percent.

The epidemic has hurt global luxury brands that have been investing heavily to open new stores and beef up their online presence to capitalize on the spending power of Chinese shoppers.

But many retailers, including Tapestry and Ralph Lauren, have shut stores following the health emergency, forcing them to cut their forecasts for Chinese Lunar New Year period, one of the busiest shopping seasons.

"People are staying home and avoiding shopping for their own health and safety in China and abroad.. we are seeing impact in our stores and on Tmall in China," Chief Executive Officer Dani Reiss told analysts.

Canada Goose, which generates about a fifth of its revenue from Asia and sells $1,000 parkas, operates three stores in China and sells on online marketplace Tmall.

Reiss said travel restrictions and flight cancellations to Europe and North America would also impact revenue.

In the third quarter that ended before the virus outbreak, Canada Goose nearly doubled its revenue from Asia, helping overall revenue rise 13.2% to C$452.1 million ($340 million), beating Wall Street estimates of C$448.18 million.

However, the company now expects revenue growth to slow to between 13.8 percent and 15 percent for fiscal 2020, compared with its prior forecast of at least 20 percent growth.

That translates to C$945 million to C$955 million, a hit of up to C$51.6 million. Analysts were expecting C$1.03 billion, according to IBES data from Refinitiv.

"(The impact is) all around right now... The apparel space has global exposure, specifically to China," CFRA Research analyst Camilla Yanushevsky said.

Canada Goose forecast full-year adjusted profit growth to be in the range of 2.2 percent decline to 0.7 percent rise from a year earlier, much lower than its previous forecast of at least 25 percent growth.

The forecast of C$1.33 per share to C$1.37 per share was below the average analysts' estimate of C$1.68.

Investors Hit the Brakes on Automotive Startups

Fervor for self-driving tech cools, and an accelerator in Detroit shuts down.

But this year, Techstars Detroit won’t take on new startups. Instead, it’s shutting down, as earlier reported by TechCrunch. “Right now, there is no funding,” says Serbinski, the accelerator’s managing director. Part of the organization’s collapse is due to internal issues within TechStars, a global network of accelerators and itself a startup, Serbinski says. But the venture capitalist also blames trade winds within the automotive sector: a shift away from autonomous vehicle investment and towards electrification, and a drive (no pun intended) towards less experimental businesses that can actually make money.

Figures from the data and research company Pitchbook released last week are revealing. Companies in the “mobility” sector, which includes those working on autonomous and electric vehicles, ride-hailing, auto commerce, transportation logistics, and micromobility, are still humming, raising $33.5 billion in venture capital from 756 deals in 2019. But that’s $25.2 billion less, and 130 fewer, than the year previous.

Automakers, inspired by government regulations in China and Europe and the promise of easier-to-build and cheaper-to-maintain electrics, continue to pour billions into electrifying their offerings, the data shows. But they pulled back from “mobility-as-a-service” offerings, like car-share.

Last year’s giant investments in autonomous vehicle companies like Aurora and Nuro kept the total amount pouring into the robot car sector at record levels. But there were fewer deals, and early- and seed-stage investment in AVs tapered off—a sign that the industry is getting less buzzy and more mature.

Autonomous vehicles “are definitely in that ‘trough of disillusionment,’” says Tarek Elessawi, a senior ventures associate at the early stage investor Plug and Play, referring to the stage in the consultancy Gartner’s “hype cycle” when interest ebbs in a once-hot technology. “We were pretty optimistic about where autonomy was going in 2016 and 2017. Then in 2018, pragmatism started to set in.” By late 2018, even the putative industry leaders at Waymo acknowledged that they were not ready to let totally driverless cars loose on the roads.

Global auto sales fell 4.4 percent last year, according to forecasting service LMC Automotive. The slump was especially pronounced in China, where sales of light vehicles fell by 8.3 percent, the biggest drop in at least 20 years.

Partly as a result, venture capitalists say, automotive companies and suppliers are more interested in focusing on what they do best—manufacturing vehicles, building out new hardware—than wild experiments in ventures that may or may not turn a profit. Last year, Ford shut down its recently acquired shuttle service, Chariot, and General Motors, Daimler, and BMW wound down their US-based car-sharing services. Those projects were vestiges of excitement around mobility—and some fear of upstarts like Uber, which once threatened to rewrite the automotive game but now struggle with questions of profitability.

Now, “the experimental money and access to easy money is gone” in the automotive industry, says Serbinski. He says he’ll continue to advise the companies that emerged from the local TechStars, and invest in the transportation space.

When it comes to electrification, most automakers are spending the majority of their research and development dollars internally. “They feel they have a lot of competency in house, where they have legions of people in hardware and manufacturing,” says Quin Garcia, the managing director and cofounder of Autotech Ventures, which invests in ground transportation. Startups should play a bigger role in helping to electrify the world’s infrastructure, he says. Autotech Ventures for example, invested in Volta Charging, which builds out ad-supported charging stations that are free to electric vehicle drivers. In contrast to robot cars, venture capitalists say, electrification feels very real.