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Week in Review: Chips with that?

Week in review: Chips with that?

This week: Smartphones, index highs and urban octopus

Korea has rarely been far from the headlines recently, given the North’s nuclear tests and missile launches. But the Korean Peninsula offers chips as well as fission. With microchip sales soaring, South Korean shares have been enjoying a whizzbang year.

The flagship Korean company is Samsung Electronics, which continued to surge this week. Shares in the electronics giant were up 2.7% by Thursday’s close, bringing year-to-date returns to 52%.

Why all the excitement? Well, on Friday Samsung announced its third-quarter results, which, as investors had anticipated, showcased blowout sales of dynamic random-access memory (DRAM) chips. And the company’s Galaxy Note 8 smartphone has become its best-selling model, erasing memories of the much-publicized failure of the Note 7, which was noted more for its exploding battery than its explosive sales. Even the resignation of Samsung’s CEO – on the same day as the results – took only a little shine off Samsung’s shares.

More than a wee DRAM?

What explains the demand for memory chips? Ever-more powerful smartphones are playing a big part in it, as is the rise in cloud computing. The industry is also a bit of an oligopoly. There are just three major players: Micron Technology in the U.S., Samsung and its smaller Korean peer SK Hynix (up almost 4% this week and nearly 100% in 2017).

Between them, Samsung Electronics and SK Hynix making up more than 25% of the Korea Composite Stock Price Index, or Kospi. The surge in DRAM-makers’ shares helped to propel the index to an all-time high.

Hitting the high notes

The Kospi wasn’t the only market to hit a record high this week. Global stock markets were in an ebullient mood, with several other major indices reaching best-ever levels. The MSCI All World was one, and all three major U.S. indices – the Dow Jones, the S&P 500 and the Nasdaq – found themselves in uncharted territory. Meanwhile, Japan’s Nikkei hit its highest level for 21 years. In the UK, the FTSE 100 had a good week too, rising 0.44% to a new high by Thursday’s close. And the FTSE World Europe ex UK index gained 0.38%.

Catalan calm?

The rise in European markets was helped by a dissipation of the tensions between the Spanish and Catalan governments. After the disputed Catalan referendum on 2 October, a degree of calm was restored when Carles Puigdemont, the Catalan president, held back from a formal declaration of independence to seek dialogue with Madrid. Although the outcome of the current stand-off between the Catalan and Spanish authorities remains highly uncertain, markets rallied in relief that a full-blown crisis had been avoided for now.

Pound in headache

The FTSE’s gains were helped by a weaker pound. At the start of the week, UK Prime Minister Theresa May set out plans for a “contingency scenario” should no deal be reached. Michel Barnier, the European Union’s (EU) chief negotiator, subsequently described Brexit talks as being “in a state of deadlock” – causing the pound to plunge and the shares of UK-based companies with overseas earnings to rally.

Christine Lagarde, the managing director of the International Monetary Fund (IMF), said that she could not imagine a scenario in which the UK left the European Union without a trade deal. In its World Economic Outlook, released on Tuesday, the IMF warned that the global economy’s recovery may not last – and that booming asset markets might be creating a false sense of security.

And finally …

“Everything is octopusied,” wrote Wendy Williams in Kraken: The Curious, Exciting and Slightly Disturbing Science of Squid.

Well, so it seems. Marine biologists working off the coast of Eastern Australia have discovered that octopuses have moved into urban planning. Beneath the waves of Jervis Bay lies Octlantis: a cephalopod city. The eight-armed architects have constructed their dwellings from scallop and clam shells – the remains of their prey. Another such settlement – Octopolis – was built around a man-made metal object and thought to be a one-off. But the discovery of Octlantis proves that cephalopods are doing it for themselves.

Ironically enough, Octlantis was built by octopus tetricus – the “gloomy octopus” – now revealed to be an altogether more sociable animal than was previously thought. But it’s not all neighborly good cheer in the city’s ocean-floor streets. Scientists have witnessed violent domestic disputes and even evictions. Evidently, life in Octlantis requires considerable tentacular fortitude.

Important Information

Companies mentioned for illustrative purposes only and should not be taken as a recommendation to buy or sell any security. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.

Indices are unmanaged and have been provided for comparison purposes only. No Fees or expenses are reflected. You cannot invest directly in an index.

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks may be enhanced in emerging markets countries.

ID: US-131017-49038-1

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