Shockwaves were felt across the world’s financial markets after China’s stock market fell, prompting sharp drops in share prices on ‘Black Monday’(August 24).
Although the country’s decision to cut its interest rate boosted global prices yesterday (August 25), there were still fears over the impact of China’s slowing growth.
A number of large UK food companies listed on the London Stock Exchange could be impacted, said Julian Wild, head of the food team at law firm Rollits, ahead of yesterday’s rally.
Large public firms such as Premier Foods, Associated British Foods and Hilton Food Group could be vulnerable.
‘A lot of global uncertainty’
“Turmoil in financial markets impacts on all quoted stocks,” Wild said. “Share prices are affected by a wide range of issues and there is a lot of global uncertainty. The direct impact will be more on exporters.”
‘Black Monday’ at a glance
- Dubbed the Great Fall of China
- Shanghai Stock Exchange suffered heavy losses
- Billions were wiped off the world’s financial markets on Monday, August 24
- Global shares surged on Tuesday, August 25, after China cut its main interest rate
There are fears that an economic slowdown in China, which has the second largest economy in the world, would have far-reaching effects.
Asked about demand for food and drink products, Wild said: “A slowing of the Chinese economy obviously has a major impact on prosperity there, but demand in the Asian markets is still huge.”
Many food companies have targeted the Chinese retail market, which has presented opportunity with the growth of an urban middle class in major cities such as Shanghai.
Huge demand in Asian markets
Premier Foods was one of the manufacturers that had exploited this potential and launched Ambrosia rice in China last year as part of its bid to step up global sales.
Wild said highly leveraged companies were more susceptible if they had to “weather a prolonged storm” but low interest rates made financial costs manageable.
He said: “Premier has worked hard to bring down its indebtedness and to put its business into better shape. It is still very UK-focused and I doubt China will have much impact.”
Volatility in currency markets could delay increases in interest rates in the UK, some analysts have predicted.
Meanwhile, Premier Foods boss Gavin Darby last year told our sister title Food Manufacture that the company would not become a victim of the Eurozone crisis.
Darby said the company did business in the pound while the UK accounted for 90% of sales and 92% of its export products were made in factories here.
Verdict from leading analyst
“A slowing of the Chinese economy obviously has a major impact on prosperity there, but demand in the Asian markets is still huge.”
- Julian Wild, head of the food team at law firm Rollits