While a red day on Wall Street on Tuesday put investors on edge, it didn’t trigger contagion across global markets.
The Nasdaq fell 2.2% and the Vix measure of volatility jumped 13%, prompting investors to worry if we’re on the cusp of a new market meltdown. Fortunately, Asian and European markets showed resilience on Wednesday and helped to settle nerves.
This suggests the US tech sell-off was simply a bout of profit taking after a stellar run for memory chip suppliers. Semiconductor group Micron reports results today, and certain investors will have taken the view that it is better to travel than arrive, cashing out before the results in case the numbers don’t smash expectations. Micron’s shares are up 269% year-to-date, which is a stellar performance in anyone’s books.
Gilt yields held firm despite reports that Rachel Reeves would be replaced as chancellor if Andy Burnham succeeded in becoming prime minister. Such a move wouldn’t be a surprise given how she is tied to the hip with Starmer. It’s normal to see a clean sweep when there is a change at the top to avoid doing things ‘the old way’. Interestingly, reports suggest Reeves would be offered an olive branch in the form of an alternative cabinet role rather than being cast aside completely.
Defence contractor Rheinmetall slumped 15% on reports that Germany plans to scrap a multibillion-euro frigate project. If true, it would be a stark reminder to investors that this sector has form in experiencing delays and setbacks, despite various governments pledging over the past few years to boost defence spending.
Segro
The expansion of logistics property plays into data centres is taking a dull area to more interesting places and that’s evident in the takeover interest in Segro.
It’s hard to believe San Francisco’s Prologis would have been interested in Segro when it was simply focused on warehouses. Prologis specifically references the target’s pipeline of data centres in its rationale for the deal.
Prologis urging shareholders to encourage Segro to engage suggests the initial all-share bid submitted last week is just its opening salvo and that Segro’s rejection won’t be the final word in the story.
Whether an all-share bid will prove attractive to shareholders, given it would mean ending up with an investment in a much different entity, is open to question. Perhaps including a cash element would help smooth the passage of any deal.
A chunkier premium may also be required. Should Prologis succeed with its pursuit, it would represent yet another large-cap loss from the UK market and a diminution in its breadth and quality.
Berkeley
Berkeley had already got the bad news out of the way in the run-up to its full-year results, so it was not a surprise to see investors react with relief on publication of the numbers.
In April the foundations of the share price were rocked as Berkeley downgraded guidance and announced a halt to land buying, in what felt like a particularly gloomy assessment of the immediate prospects, both for itself and for the wider sector. It was significant as Berkeley is known for its ability to successfully call the ups and downs of the property market.
Today’s announcement reveals the situation has not got dramatically worse. Cash was higher than expected, giving Berkeley a buffer to ride out any turbulence. The promise of share buybacks to help take advantage of any discount between the share price and the value of its assets was well received.
While the backdrop is bleak, Berkeley is as well placed as any of its peer group to come out the other side of a difficult period in decent shape.
Trainline
Trainline has found its new leader after parting ways with Jody Ford in February. Long-suffering shareholders hoping for a share price resurrection have been begging for the replacement boss to be the one and not fool’s gold. Unfortunately, a 5% share price drop on hiring Ian Brown indicates he is not what the world was waiting for.
Brown joins from Flutter and brings experience with digital platforms, qualities which could help Trainline in its quest to fight off growing competition in the transport ticketing space. However, a major structural headwind means he will need more than just digital experience to succeed.
Shareholders have endured two years of share price pain as the market worries about the UK government’s plans to create a single state-backed rail ticketing platform, thereby aggregating fares across all operators and going head-to-head with Trainline. This matters because the UK is so important to Trainline, despite enjoying stronger growth overseas.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
