Bull and Bear: An in-between year for technology, or calm before a new gale of creative destruction? - The Share Centre Blog

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Michael Baxter

Bull and Bear: An in-between year for technology, or calm before a new gale of creative destruction?

Written by: Michael Baxter on January 7th 2014

Category: Bull & Bear, News

Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories include: An in-between year for technology, or calm before a new gale of creative destruction? Car sales hit six year high. BCC goes more bullish. Eurozone pick-up continues. HSBC in deflation warning

An in-between year for technology, or calm before a new gale of creative destruction?

Profits are down at Samsung – at least the Korean company has forecast an 18 per cent drop in profits for the three months to the end of December. You don’t need to look far for a reason; indeed, you only need to look at what people are holding. Samsung’s problem is competition, and no doubt its competition’s problem is, in part, Samsung.

Smart phones and tablets are losing their magic. Sure, they are as popular as ever, but magic works best when most of us look on in wonder. These days many of us just wonder how we managed before we had smart phones – you may find this hard to believe but there was a time when people used to tell the time by looking at this round thing on their wrist, and there was a time when we found out what members of our family were up to by asking them. Oh what primitive times!

Apple’s recent deal with China Mobile has not gone down very well at Samsung, which has, up to now, been the bigger player of the two in China. But the truth is that smart phones and tablets have become commodities, and that means fewer profits.

Apple has cunning little ideas such as iBeacon, which introduces a whole new revenue model, but there is a feeling out there that 2014 will be the year for waiting. The ‘FT’ said it yesterday. It headlined: Global tech market poised to shrink amid lack of new gadgets 

January, as you may know, is the time of the month when the latest wizardry goes on show at the CES show in Las Vegas. All eyes look to Vegas, and on this occasion what happens in Vegas most certainly does not stay there.

So while on one hand some say we are at an in-between stage, the news from CES is that wearable technology and the internet of things is becoming hotter.

Oh and Samsung has a bendy TV, that it so say the TV has lots of curves and – get this – it changes shape in order to enhance the viewing experience. Presumably if you are watching ‘Jaws’, it changes into a 20 foot long shark, leaping at you on the sofa – or perhaps technology is not ready for that yet.

It is too soon to tell whether 2014 will indeed be an in-between year, but don’t whatever you do fall into the trap of viewing technology in much the same way as most people did in the immediate aftermath of the dotcom crash. There is enough technology in the pipeline to fuel at least half a dozen new booms (and crashes), but just remember, in much the same way that some traditional businesses have learnt how to turn the internet to their advantage, many established companies will do very well out of wearable technology and the internet of things – it is just that a good many will also go bust.

Car sales hit six year high

Not so long ago, we were cheering the fact that car exports from the UK were close to the value of imports. But will this balance be maintained, given the latest news from the SMMT?

It turns out that 2013 saw a 10 per cent rise in new car registrations to 2,264,737. This was the highest number of registrations since 2007. It also means that the UK was Europe’s second biggest market for cars in the year, behind Germany. Indeed the SMMT said the UK car market was the only one to grow consistently during the year.

Mike Hawes, SMMT chief executive, said: “While the European market is only now showing signs of improvement, the UK has consistently outperformed the rest of Europe with 22 consecutive months of growth. The 10.8% increase in 2013 reflects the attractive financial offers available as well as increased demand for more technologically advanced new cars. We expect new car registrations to remain stable in 2014 as customers return to a more regular replacement cycle.”

It turns out that the Fiesta was the most popular car, followed by the Focus. SMMT said: “Since 2008, the UK market has seen a shift away from the Upper Medium segment towards smaller cars in the Mini and Supermini segments, as well as the MPV and Dual Purpose segments.”

Registrations of hybrid and plug-in cars rose 17.5% in 2013 to 32,727 units. See: 2013 new car market records best performance in five years

BCC goes more bullish

It’s not a bad start to the year; today saw the first major economic survey of 2014 and it has pointed upwards.

The British Chamber of Commerce has revised its forecast for the UK economy to grow by 0.9 per cent in Q4.

The report is produced by surveying 8,000 businesses. For manufacturing, five key balances hit an all-time high – domestic orders (+35 per cent), employment (+33 per cent), employment expectations (+31 per cent), turnover confidence (+67 per cent), and profitability confidence (+51 per cent).

Both export balances in the services sector hit record highs , with export sales at +36 per cent, and export orders at +33 per cent.

No fluke in manufacturing

Commenting on the results, John Longworth, director general of the BCC, said: “It is fantastic to start the New Year with a very positive quarterly survey. Confidence is high and our members are resolute in their determination to take the recovery from being good to being truly great. Firms across the board believe they can create jobs, invest, and export. It is especially pleasing that the spurt in the manufacturing has proven not to be a fluke, which demonstrates the dynamism of our small, high value, manufacturing sector. But businesses have major ambitions, and to be able to meet them, more support must be provided.”

Eurozone pick-up continues

The latest composite PMIs covering the Eurozone in December were out yesterday. The index covering the entire region rose to 52.1, which was a three month high, and its second highest level in the last two and half years.

Here is the breakdown:

Ireland                   58.6        2-month high

Germany              55.0        2-month low

Spain                      53.9        77-month high

Italy                        50.0        2-month high

France                   47.3        7-month low


Chris Williamson, chief economist at Markit, said: “Although consistent with a mere 0.2 per cent expansion of GDP during the final quarter, the PMI signalled a strong turnaround in the health of the economy during the course of 2013, and stronger growth looks likely for the first quarter of 2014.

“Most importantly, the labour market stabilised in December, ending a period of falling employment that lasted nearly two years. With inflows of new work accelerating, a return to jobs growth should be seen in 2014. The revival in consumer confidence that should result from the labour market improvement should provide an all-important boost to the economy in 2014.”

Bear:      But he added: “However, while the region as a whole looks set for a strengthening recovery in 2014, growth is uneven, with France in particular having possibly slid back into recession late last year.”

HSBC in deflation warning

It’s a dilemma. The economies in the UK, the US, and even the Eurozone appear to be improving, but deflation seems to be a bigger threat than inflation. What should central banks do? At least HSBC thinks it’s a dilemma.

HSBC said: “Initial bouts of quantitative easing – whether in the UK, Japan or US – were associated with sizeable exchange-rate declines that temporarily lifted inflation in the ‘host’ country. Yet for every exchange-rate decline there must inevitably be an exchange-rate rise. And for those experiencing ‘unwanted’ gains, inflation has ended up lower than expected and, often, lower than desired. Look at the eurozone in the second half of 2013.”

One country’s monetary stimulus is increasingly another’s ball and chain

It continued: “Normally, this wouldn’t be a problem. But with domestic transmission mechanisms not working as well as they might, and with growing protectionism, one country’s monetary stimulus is increasingly another’s ball and chain. If unconventional policies work primarily through the exchange rate, they serve primarily to export, rather than cure, disinflationary pressures. At the international level, those pressures refuse to subside.”

HSBC reckons 2014 will see global growth of 2.8 per cent, compared to 2.6 per cent in 2013 and 2.0 per cent in 1012 . It reckons emerging markets will do better, and grow at 5 per cent, but that Brazil remains weak.

Forward Guidance

HSBC doesn’t think deflation is likely, but said: “There is a risk that inflation remains too low, or even sinks, over the next two years. Japan’s experience in the 1990s demonstrated that a near-term cyclical pick-up in no sense guarantees the deflation genie has been put back in its bottle.”

It concluded: “Forward guidance may increasingly have to focus on the dangers associated with inflationary undershoots rather than on growth overshoots, implying interest rates stay low for longer, particularly in the US and the Eurozone.”

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: BCC forecasts for UK economy, car sales, danger of global deflation, Eurozone PMIs, Samsung profits, smart phones Internet of things and wearable technology

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