Market Overview

Dear Investor,

This week, we’ve seen a swift unravelling of the China ‘stimulus surge’ we wrote about last month.

The ripple effects of this shift are being felt across various sectors, particularly in luxury goods. Just recently, LVMH reported a 16% drop in third-quarter sales in Asia, excluding Japan, highlighting the significant slowdown in consumer demand. As confidence in the Chinese economy continues to wane, luxury brands are grappling with a diminished appetite among Chinese shoppers—who have historically been key drivers of industry growth. With major players like Hermès and Kering feeling the pinch, it’s clear the sector is under pressure as global demand softens.

This downturn isn’t merely a set of disappointing numbers; it reflects deeper economic concerns. Consumer confidence in mainland China has plunged to levels reminiscent of the Covid-era lows, signalling growing unease about the economic outlook and the weak housing market. With fears mounting and spending habits shifting, we are left to wonder whether the recent stimulus measures can effectively turn the tide.

As we move into the final quarter of the year, the implications of these developments will be felt across the FTSE which is heavily weighted towards mining stocks. We will be watching closely to see if Beijing can pivot with more robust measures, but for now, the mood has shifted from optimism to cautious anticipation. Whether this marks a turning point or just a temporary setback will depend on how quickly—and decisively—China acts next.

Wishing you a fantastic weekend,

Tom

Market Movers

On the rise: Tate & Lyle (LSE:TATE) +13.6% on the week

Tate & Lyle surged higher this week after reports emerged that private equity firm Advent International is preparing a potential takeover offer for the food and beverage ingredients maker.

While Advent’s bid is still in the early stages and a firm offer has not been confirmed, the mere possibility of a takeover has sparked enthusiasm among investors, highlighting Tate & Lyle’s robust position in the market for food ingredients, including its popular offerings like Splenda, used in sugar-free beverages.

REGENCY VIEW:

While Tate & Lyle’s recent 6% dip in revenue raises eyebrows, the company maintains a solid operating margin of 12.57% and a reliable dividend yield of 2.6%. This consumer defensives stalwart has an uncanny ability to weather storms and deliver value to investors even in choppy waters.

On the slide: Mondi (LSE:MNDI) -11.5% on the week

Shares in sustainable packaging and paper production company Mondi took a hit this week following their Q3 2024 trading update, which revealed a decline in underlying earnings (EBITDA) to €223 million, down from €351 million in Q2 2024.

Seasonal demand remained softer than expected, compounded by rising input costs. Although selling prices for Corrugated Packaging and Flexible Packaging saw increases due to earlier price adjustments, the pulp and paper selling prices in the Uncoated Fine Paper segment declined, raising concerns among investors about Mondi’s ability to maintain its performance levels.

CEO Andrew King acknowledged the muted trading conditions amid an uncertain macroeconomic environment but expressed optimism for the fourth quarter. He noted that fewer planned maintenance shuts are expected, which, coupled with the normal seasonal pick-up in demand, could enhance performance moving forward.

REGENCY VIEW:

Mondi’s recent newsflow has been negative, but the bigger picture outlook remains positive, bolstered by ongoing expansion projects that are set to enhance its EBITDA contributions from 2025. With strong fundamentals, including a forward P/E of 12.3 and a PEG ratio of 0.6, the company is well-positioned to capitalise on the growing demand for sustainable packaging.

Sector Snapshot

This week’s sector snapshot is a picture of broad-based strength, with two notable exceptions:

The Energy sector has cooled followed three weeks of gains and Materials have also weakened as the Chinese stimulus rally continued to unwind.

UK Price Action

This week’s price action has seen the FTSE break above the small descending trendline which has mapped the small cluster of lower swing highs that formed in recent weeks. This break higher has not been backed by a rise in volume and the market now faces significant resistance.