August 12, 2015 Last Updated 12:12 pm

Stock markets fall worldwide as China devalues its currency a second time; Pearson sells its stake in The Economist Group

Morning Brief: Alibaba’s earnings miss, announced today, could impact the value Yahoo’s planned spin-off of its stake in the Chinese commerce giant

The stock market will open down once again following another devaluation of the Chinese currency. The Chinese central bank set the official rate for the renminbi (yuan) at 6.33 per dollar today, a 1.6 percent drop.

downarrow-200Yesterday, the same central bank devaluated the currency 2 percent in a move that rattled markets. A lower currency will make Chinese goods less expensive, and will lower revenues for companies selling into the Chinese market unless they can successfully pass along price increases.

European markets reacted to the news by trading stocks sharply down. The German DAX is down over 250 points a drop of 2.2 percent, while the French CAC fell by the same percentage. The FTSE 100 is trading down a little over 1 percent in London today.

The New York Times quotes several investment advisors who are concerned by the moves. Jorge O. Mariscal, chief investment officer for emerging markets at UBS, said “they were almost panicky measures — that is the concern.”

Several newspapers wrote about the possible impact on Apple of the Chinese devaluation. USA Today blamed the over 5 percent decline in Apple’s stock price on the moves by the Chinese central bank, pointing out that much of the company’s earnings growth is due to rising sales in China. The paper also said that chipmakers Qualcomm, Intel and Nvidia get a large share of their profits from China.

The Wall Street Journal also worried about the devaluation’s impact on Apple, but also mentioned that the lower value for the yuan will make Chinese goods cheaper.

“Chinese tech companies across sectors are all pushing out into the world. The yuan devaluation will make these products that much more competitive overseas,” said Xiang Ligang, chief executive of Chinese telecommunications industry website

The Chinese e-commerce company Alibaba Group announced earnings today and missed expectations. It reported $3.16 billion in revenues during its first quarter, less than the consensus estimate of $3.28 billion. Alibaba stock has fallen since its IPO, but the miss will mean that Yahoo stock could take a hit. Yahoo said earlier that it would be spinning off its 15 percent stake in the Chinese online retailer into a public investment company called SpinCo. Any decrease in the value of Alibaba lessens Yahoo’s return, as well.

Yahoo’s stock price is down over 4 percent in pre-market trading on the news.

Alibaba’s stock price hit a high of $94.77 in May, but is trading today near $72.50.

Pearson has sold its share of The Economist Group for £469 million in cash, as the company continues to focus on its education business.

EXOR SpA is buying around half of Pearson’s shares, around £227.5 million in ordinary shares and £59.5 million oath of B special shares, raising its stake in the media company to more than 43 percent. The Economist Group is repurchasing the rest of Pearson’s shareholding for £182 million.

EXOR SpA is the investment arm of Italy’s Agnelli family, founders of the automobile group Fiat SpA, and now becomes the largest shareholder in The Economist Group.

TheEconomist-8-15-300“By increasing our investment in the Economist we are delighted to affirm our role as one of the group’s long-term supportive shareholders, along with the Cadbury, Layton, Rothschild and Schroder families and other individual stable investors,” said John Elkann, Chairman and Chief Executive of EXOR, and Fiat heir.

“We have always admired the editorial integrity and thoroughly global outlook that are the hallmarks of The Economist’s success and we fully subscribe to its historic mission to ‘take part in a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress’,” Elkann said.

“Pearson is proud to have been a part of the Economist’s success over the past 58 years, and our shareholders have benefited greatly from its growth,” John Fallon, Pearson’s chief executive, said in the company’s sale announcement. “We have enjoyed supporting the company as it has built a global business, sustaining the excellence of its journalism and ensuring it is read more widely. We wish all our colleagues at The Economist every future success.”

“Pearson is now 100% focused on our global education strategy. The world of education is changing rapidly and we see great opportunity to grow our business through increasing access to high quality learning globally,” Fallon said.

Pearson last month sold the Financial Times to Nikkei for £844 million, and still owns a large stake in the book publisher Penguin Random House.

“A change in ownership is an important event for any newspaper, even The Economist, whose editorial independence is absolute and is fiercely guarded by four independent trustees,” the magazine said in a letter from the editor today. “We are confident that this transaction, which is subject to the approval of our shareholders and is only the second significant change of ownership in our 172-year history, will serve this newspaper and its readers well.”

“The background against which this change of ownership takes place is the digital transformation of the newspaper industry. Mobile technology and the rise of social media offer unprecedented opportunities to reach new audiences in new ways. But they are disrupting business models and spawning new digital competitors,” the magazine said, while expressing confidence that the publishing brand was well positioned to prosper.

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