Chinese regulatory fears shift to gaming stocks and the public continues to feast on Greggs

“Fears over Chinese regulatory interference aren’t going away, with Tencent the latest stock to slump on chatter about Beijing seeking to wield its power,” says Russ Mould, Investment Director at AJ Bell.

“Talk that gaming will be the next sector to come under pressure from the authorities in China saw Tencent’s shares fall more than 10% at one point on Tuesday. They are now down by more than a fifth year to date as investors reassess their willingness to have exposure to big Chinese names.

“This is turning out to be one of the big stories of 2021 for global markets, overshadowing what many people thought would the key focal point for Asia – namely a year of strong economic growth.

“As part of the broader issues troubling Asia, it is also worth watching property developer China Evergrande after yet more suppliers said payments were overdue. This highly indebted company is one of the biggest players in the Chinese property market and it would be highly embarrassing to the government if it collapsed due to financial pressures. Its shares fell nearly 8%, meaning the stock is now down by 63% year to date.

“On the UK market, the FTSE 100 rose 0.4% to 7,108, led by BP swinging back into profit for its half year. While there was the long-awaited news of a share buyback, confirmed at $1.4 billion, some investors may be disappointed at the paltry rise in the dividend. BP nudged up the shareholder payout by 4%, which pales in comparison to Royal Dutch Shell’s 40% increase declared last month.”

Greggs

“Greggs continues to deliver robust numbers and once again raises earnings guidance. Footfall to its shops is still lower than pre-pandemic, but those who are visiting are spending more and Greggs now also has a thriving delivery service to keep the tills ringing.

“More people back working in the office should play well to Greggs as that should drive more traffic to its stores at lunchtime and for coffee breaks in the morning and afternoon.

“Equally, expansion of its car-based sites including drive-through stores is well timed given how many people have stuck to their own four wheels rather than use public transport since the pandemic began.

“Greggs is reaping the benefits of having built up a good reputation for quality products at affordable prices. As economic activity picks up, its brand strength should see it act as a magnet for hungry individuals.

“The timing is also perfect for the next leg of its vegan product rollout. In 2019 Greggs created quite a splash when it launched the vegan sausage roll, attracting people to its shops who wouldn’t normally go there, and becoming the talking point of the nation when it came to savoury snacks.

“Now comes the vegan version of its sausage, bean and cheese melt. It’s creating a buzz about the brand again, just at the point when post-lockdown pent-up demand has started to fade, and more food businesses are vying for a share of the consumer’s wallet.

“The scope for product innovation is huge. Greggs could do many different vegan twists on classic meat products to not only broaden its appeal to the public but also keep the marketing buzz going.

“Never one to stand still, Greggs is pressing ahead with expanding its store estate and is also pushing a pre-ordering facility so that people can pop in on their way home and not have to hang about or be disappointed that their desired product is no longer available.

“It’s also gone down to the classic route of having a loyalty scheme with rewards, another way of helping to attract repeat business from customers.

“For what is essentially a business selling basic hot drinks and flaky pastry-based snacks, Greggs is very innovative in terms of the way the business is run and finding opportunities to grow. It truly is a great British retail champion.”

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