By Geoffrey Smith
Investing.com — The days when German engineering giant Siemens (OTC:) was a bellwether for all European industry are long gone, but there is still a big read-across from its surprise update this morning, which again underlined the importance of the Chinese economy for the rest of the world.
Siemens (DE:) stock in Frankfurt rose as much as 6.1% to another all-time high, before retracing a bit to be up 4.9% by 5:35 AM ET (1035 GMT). They’re now up 30% from their pre-pandemic high, something that reflects both the outperformance of manufacturing versus services in general in recent months, but also the unlocking of value through outgoing CEO Joe Kaeser’s decentralization strategy.
An upward revision to guidance would take the pressure off a valuation that, at over 21 times trailing 12-month earnings, is looking stretched by historical standards. Adjusted earnings before interest, taxes and amortization were more than 40% ahead of consensus in the core Digital Industries segment and 30% ahead in the Smart Infrastructure segment. Only Mobility lagged, due largely to the chilling effect of the pandemic on mass transport.
The numbers, coming on the heels of fresh assurances by European Central Bank President Christine Lagarde on Thursday, suggest that the company will have no problems with a heavy refinancing schedule this year.
It was China’s factories that were principally responsible for the orders that drove Siemens’ revenue and profits so far above expectations in the three months through December that it had to tell the stock exchange it may revise its guidance when it releases its full quarterly results in 10 days’ time.
That underlines what’s at stake as the new administration of U.S. President Joe Biden determines the extent to which it will continue Donald Trump’s economic war on China.
Comments from Secretary of State designate Anthony Binken this week, which endorsed the use of the term ‘genocide’ to describe China’s treatment of its Muslim Uighur minority in the province of Xinjiang, reinforce impressions that Biden will be slow to relax the pressure on Beijing. In such a context, an expansion of sanctions against individual Chinese officials and companies seems quite possible.
But efforts to form a united front with Europe against China will be complicated as long as big employers like Siemens thrive on doing business with it – especially if other sources of demand are lacking. The EU has just signed an investment treaty with China that will open further doors to European industry there, and business will be eager to exploit that. The harsh reality is that European capital goods companies like Siemens do very well out of fulfilling China’s ambition to be the workshop of the world. It will take a fiendishly clever combination of carrot and stick on the U.S.’s part to change that.
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