Daily market update: Unilever, Semiconductor restrictions on China, Smith & Nephew

“The FTSE 100 made a reasonable start to trading on Tuesday despite a late slump on Wall Street and selling across Asia,” says AJ Bell Investment Director Russ Mould.

“Suggestions the Trump administration would toughen existing restrictions on exporting semiconductors to China and hints tariffs on Canada and Mexico, initially delayed, were still coming down the track hit sentiment.

“Banks and defence stocks helped keep the UK’s flagship index afloat while the miners largely fell, with the sector’s exposure to a volatile Chinese economy partly responsible for the weakness.

“Tesla disappointed motorists in China with an update to its autopilot driver assistance software, which apparently fell short of what Elon Musk had promised and what is available in the US. This is partly down to tech restrictions introduced by governments in Beijing and Washington. It could further undermine Tesla’s competitiveness in the world’s second largest economy relative to domestic players.”

Unilever

“It’s often easy to spot why a chief executive has left with immediate effect, such as presiding over a long period of share price weakness, profit warnings or making a transformational acquisition that proved to be a dud. In Unilever’s case, the reason for Hein Schumacher’s departure is less obvious.

“Since Schumacher joined in July 2023, underlying operating profit has increased by 15%, free cash flow has risen by a third and margins have gone up by 2.3 percentage points. Strategic decisions have been taken to slim down the business, with the proposed demerger of the ice cream arm. Other non-core assets are thought to be up for sale including its Vegetarian Butcher plant-based meat brand and skincare brand Kate Somerville.

“Schumacher has breathed new life into the business, making it run more efficiently and focusing on what the company does best. Under normal circumstances, the progress so far would be applauded. That makes his departure all the more mysterious. It suggests disagreements behind closed doors with colleagues and/or shareholders.

“Unilever’s shares have risen by 9% since Schumacher started as CEO, lagging the 15% return from the FTSE 100. Certain investors would view that as disappointing but it’s hardly disastrous enough to warrant parting ways with the boss. A clue might be found in the comments from Unilever chair Ian Meakins who said Schumacher’s replacement, Fernando Fernandez, has the ability to ‘drive change at speed’ and that the board has confidence in him realising the benefits of a growth plan ‘with urgency’. That implies the board might have viewed Schumacher’s progress as being too pedestrian.

“It begs the question whether Meakins is too focused on the short-term and not thinking about what’s best for the company longer-term. Being too aggressive simply to get the share price moving higher is a dangerous road to travel as mistakes can easily be made.

“Schumacher will have completed 1.7 years in the top job for Unilever by the times he departs on 1 March. That’s considerably less than the current 5.5-year average across the FTSE 100, according to AJ Bell analysis. It means Unilever joins a growing list of companies, including gambling group Entain, where investors have been left wondering what on earth is going on.”

Semiconductor restrictions on China

“Reports suggest that Donald Trump is looking to impose new restrictions to curb China’s use of foreign technology.

“Joe Biden during his presidency already had restrictions in place to stop China buying the most advanced chip technology from the US and deploying it for military use. Trump is expected to clamp down further, for example by imposing further restrictions on the type of Nvidia chips that can be sold to China.

“Reports suggest he also wants to stop Japanese and Dutch companies, including Tokyo Electron and ASML from maintaining semiconductor equipment in China. This would be part of a push to get allies on the same page as the US.

“Trump’s first term as US president was defined by trade wars. We might now be looking at his second term as being a tech war, with the world battling China, as well as a continuation of tit-for-tat tariffs between nations.

“The emergence of DeepSeek has shown that China isn’t going to hide beneath a rock. It’s going to fight back and develop its own tech capabilities, and that could have negative consequences for foreign firms which have historically made good money from selling into China.

“It also means the US and other nations will be watching the Asian superpower’s every move to see what it means for its military capabilities.”

Smith & Nephew

“Time was running out for Smith & Nephew’s management to demonstrate they could turn things around after years of underperformance.

“Sticking plaster solutions wouldn’t cut it with the market, so there will be relief in the boardroom they were able to present a set of results revealing genuine progress on several fronts.

“Stake building by Cevian Capital had only ramped up the pressure with the Swedish activist investor and two other top shareholders calling for the company’s orthopaedics division to be hived off. This part of the business was wounded by Covid disruption to elective surgeries and slower Chinese demand.

“However, as the company executed on its 12-point recovery plan it reported a meaningful increase in revenue, notably better profitability and, perhaps most important of all, drastically improved cash generation.

“Particularly pleasing to investors is the buoyant outlook for 2025, with the promise of further margin improvement to come.

“After nearly three years in the job it looked like CEO Deepak Nath was running out of road. These results should give him more time to execute on his strategy.”

These articles are for information purposes only and are not a personal recommendation or advice.