Reuters : Exclusive: China's BAIC seeks to buy 5 percent Daimler stake - sources - https://reut.rs/2VfTmqb
BEIJING/FRANKFURT (Reuters) - China’s BAIC Group is seeking to buy a stake of up to 5 percent in Daimler as a way to secure its investment in Chinese Mercedes-Benz manufacturing company Beijing Benz Automotive, three sources familiar with the matter told Reuters.
BAIC informed Daimler of its intention to buy a 4-5 percent stake in the German maker of Mercedes-Benz cars earlier this year, two of the three sources said.
BAIC has asked local authorities in Beijing to support a 4-5 percent stake purchase, two of these sources said.
BAIC has started acquiring Daimler shares on the open market, one source said.
“Daimler’s share price is currently being underpinned by a buyer who appears to be building a stake,” a person familiar with the matter said.
BAIC did not respond to repeated phone calls and text messages seeking comment outside regular business hours. Daimler declined to comment.
It remains unclear whether BAIC Group can raise the nearly 3 billion euros that a 5 percent stake in Daimler would cost, based on the German carmaker’s closing market value on Friday of 57.6 billion euros, two of these sources said.
German regulatory filings do not show BAIC as a significant shareholder of Daimler. German takeover rules allow a buyer to acquire a stake of up to 3 percent before a regulatory disclosure is required.
Daimler has ruled out issuing new stock to help an outside party build a stake, forcing potential buyers to acquire shares on the market.
BAIC signaled its interest in buying a Daimler stake as far back as 2015, and has redoubled its effort after Li Shufu, chairman of rival Chinese carmaker Zhejiang Geely Holding Group built a 9.69 percent stake in Stuttgart-based Daimler in early 2018.
By using Hong Kong shell companies, derivatives, bank financing and structured share options, Li kept the plan under wraps until he was able, at a stroke, to become Daimler’s single largest shareholder.
The Germans in March agreed to build the next generation of Smart-branded city cars together with Geely, which is based in Hangzhou. Daimler has also reassured BAIC that any new industrial alliances involving Mercedes and a Chinese partner would only happen after a consensus is found with BAIC.
Closing Stock Market SummaryU.S. stocks staged a major reversal on Friday, climbing from steep losses to modest gains. The S&P 500 was down as much as 1.6% on persisting trade uncertainty, but positive trade rhetoric helped lift the benchmark index to a gain of 0.4%.
The Dow Jones Industrial Average (+0.5%), the Nasdaq Composite (+0.1%), and the Russell 2000 (+0.2%) also finished higher after being down as much as 1.4%, 1.9%, and 1.5%, respectively.
Ten of the 11 S&P 500 sectors swung positive, led by utilities (+1.7%), materials (+1.3%), and consumer staples (+1.2%). The lone exception was the health care sector (-0.1%).
President Trump fueled early trade angst when he said there was no need to rush a deal after the tariff rate on $200 billion of Chinese imports was raised to 25% from 10% early Friday. He added that the U.S. was working on another set of 25% tariffs on $325 billion of Chinese imports.
The persisting trade uncertainty prompted broad-based selling in equities and general efforts to de-risk. The S&P 500 also fell below its 50-day moving average (2862). Selling conviction abated soon after the conclusion of the current round of trade negotiations in Washington.
Treasury Secretary Steven Mnuchin described the talks as "constructive," and China's Vice Premier Liu He said they went "fairly well." Bloomberg indicated sources that said the discussions produced little progress, but the positive-sounding comments helped spark a rebound attempt.
The U.S. is also reportedly giving China three to four more weeks to reach a deal, which helped provide some clarity on a timeline and improve optimism about the prospects for a deal. President Trump said that talks will continue in the future, and that tariffs may or may not be removed depending on the outcome of these discussions.
The rally caught investors off guard, especially considering that nothing concrete in terms of plans was established. Nevertheless, it prompted short-covering activity that helped strengthen the recovery attempt. The S&P 500 was able to close above its 50-day moving average.
In corporate news, Uber (UBER 41.57, -3.43, -7.6%) made its public debut on Friday, although the price action was much more subdued than past IPOs this year. Shares opened at $42 per share after pricing at $45, which was already at the lower end of the $44-$50 range.
U.S. Treasuries finished little changed after backing off their morning highs. The 2-yr yield declined two basis points to 2.24%, and the 10-yr yield was unchanged at 2.46% The U.S. Dollar Index was little changed at 97.33. WTI crude declined 0.1% to $61.66/bbl.
Reviewing Friday's economic data, which included the Consumer Price Index for April and the Treasury Budget for April:
- Total CPI increased 0.3% m/m in April (consensus 0.4%) while core CPI, which excludes food and energy, rose just 0.1% (Briefing.com consensus 0.2%) for the third consecutive month. That left the yr/yr increases at 2.0% and 2.1%, respectively.
- The key takeaway from the report is that it will keep the Fed in a neutral state of policy-setting mind and the market in an uncertain state over what the Fed's next move will be -- and when.
- The Treasury Budget for April showed a surplus of $160.3 billion versus a surplus of $214.3 billion for the same period one year ago. The Treasury Budget is not seasonally adjusted, so the April surplus cannot be compared to the $146.9 billion deficit for March.
- The fiscal year-to-date deficit is $530.9 billion versus a deficit of $385.4 billion for the same period ago.The budget deficit over the last 12 months is $924.4 billion, versus $870.5 billion for the 12 months ending in March.
Looking ahead, investors will receive the NFIB Small Business Optimism Index for April and Import and Export Prices for April on Monday.
- Nasdaq Composite +19.3% YTD
- Russell 2000 +16.6% YTD
- S&P 500 +14.9% YTD
- Dow Jones Industrial Average +11.2% YTD
Investors in US equities prepare for lurch to the left
Impact of political manoeuvring from Democrats is most visible in healthcare stocks
Donald Trump likes to say that the pumped-up US stock market is a reflection of his political success, a highly visible, real-time barometer of his chances of a second term as US president. If so, there are some signs that momentum is building — but for the other side.
One good example: the healthcare sector. Challengers for the Democrats’ presidential nomination have largely fallen in line behind “Medicare for All”, most readily associated with Bernie Sanders, the senator from Vermont, under which a single government-run plan would provide insurance coverage to all Americans.
Supporters say the plan would cut exorbitant costs while diminishing the power of for-profit health and insurance providers. Critics argue a greater role for the government would place an intolerable burden on the taxpayer. But for healthcare companies, whose business models rely on the status quo, the impact of the debate has been tangible.
This year the S&P healthcare sector has returned about 12 percentage points less than the broader S&P 500, with dividends reinvested. That marks a reversal for a sector that has beaten the market by about 40 percentage points over the past decade.
“Financial markets have started to react to campaign rhetoric,” Jan Hatzius, chief economist for Goldman Sachs, wrote in a research note last month. “Prices of health-related stocks, in particular, have already begun to react to new proposals.”
The proposals were criticised by David Wichmann, chief executive of Minnesota-based UnitedHealth, one provider whose share price has dipped despite solid earnings. Speaking on the company’s first-quarter earnings call in April, Mr Wichmann said the “wholesale disruption” of a change to the system would “surely jeopardise the relationship people have with their doctors . . . and limit the ability of clinicians to practise medicine at their best”. He added: “The inherent cost burden would surely have a severe impact on the economy and jobs, all without fundamentally increasing access to care.”
Such talk hints at the size of the challenge facing healthcare companies should a Democratic president try to push through reforms. But the chances of a radical overhaul are low. The party would have to claim the presidency and two chambers of Congress to drive meaningful change — an unlikely scenario, according to Goldman.
Even so, the episode hints at what could be a rocky patch for investors in the run-up to November 2020 when Americans go to the polls again.
A rollback of the corporate tax cuts passed by the Trump administration at the end of 2017, alongside a firmer hand on the regulatory rudder for sectors such as technology and financial services, would also weigh on corporate profits. One Democratic candidate, Massachusetts senator Elizabeth Warren, has called for a 7 per cent tax on corporate profits above $100m to help pay for US student debt.
“The stock market is an old-fashioned Republican — it doesn’t like regulation, it doesn’t like trade wars, but it likes low taxes,” said Charlie Bobrinskoy, a portfolio manager for Ariel Investments.
Ms Warren has also put forward a plan to carve up tech companies including Google and Amazon, arguing that their vast scale hurts competition. On Thursday this week Alexandria Ocasio-Cortez, a member of Congress and self-described “democratic socialist”, teamed up with Mr Sanders to propose a 15 per cent interest rate cap on all consumer loans — a move which would squeeze credit card operators while effectively throttling payday lenders. Shares in such companies were notably weak that day, almost across the board.
“Depending on how the next 18 months shapes up, the [financial services] sector could be facing real legislative and regulatory pressure,” wrote analysts at CreditSights.
The broader context is unsettling too. Next month, the post-crisis economic expansion in the US will become the longest since the second world war — a marker that feeds fears that its end is approaching, rather than hopes it will endure.
US corporate earnings growth has already slowed this year and worries over a weaker economy have prompted a policy reversal from the Federal Reserve. The central bank’s U-turn — in part a response to the tumultuous end to 2018 for US stocks — has breathed fresh life into the market. But it has also revealed fragility and a heavy reliance on low interest rates.
Given Mr Trump’s history of aligning himself to the stock market and, in recent months, pressuring central bankers, he may seek to use his Twitter account to influence the market for political gain.
“Trump, unlike any other president, ties his performance to the equity market,” said Michael Harris, president of Campbell & Company, a Baltimore-based hedge fund with $3.1bn in assets.
Mr Trump’s claims that he has boosted stocks may be dubious, but the effect of campaign rhetoric from his would-be challengers is clear.
Elaine Stokes, a Boston-based portfolio manager with Loomis Sayles, said she did not pay much attention to social media feeds a few years ago. “Now I spend more time reading and following political and geopolitical news more than anything else I do.”