Amazon, Swatch and the risks of a global recession

Bloomberg

Investors are bracing for a significant downturn in the world economy, cutting earnings estimates amid a market sell-off. While all cyclical industries face some form of risks, some companies within each sector are more vulnerable than others as the outlook deteriorates.
In recent recessions, technology and finance were the triggers — the internet bubble caused the 2000 market crash and subprime lending led to the 2008-2009 global financial
crisis that spread to housing, manufacturing and consumer demand.
“The financial sector was leading in 2002-2007. In this cycle, it’s the tech sector,” said Bloomberg Chief Equity Strategist Gina Martin Adams. Still, she cautioned that in spite of the warning signs, it may be too early to predict a recession, adding that “tech is the strength of the economy.”
Amazon.com Inc is among the most cyclical US internet companies because the Seattle-based e-commerce giant relies heavily on consumer spending. It’s been building its employee base, adding more than 600,000 jobs and hundreds of warehouses to store and ship products.
“Amazon’s near-term growth may be at risk as macroeconomic conditions worsen, regulatory scrutiny rises and spending cycles spark concern,” Jitendra Waral and April Kim, analysts at Bloomberg Intelligence, wrote in a recent note.
One of Amazon’s fastest-growing new businesses — digital advertising — is also susceptible to economic ups and downs. Still, Amazon is riding a broad e-commerce growth trend that is unlikely to reverse during a recession. Makers of luxury items tend to endure more risks in a recession than producers of mass-market consumer goods.
This time around, the effects would be compounded by US-China trade tensions and protests in Hong Kong, which has already hurt the city’s economic outlook.
Swatch Group AG, the biggest maker of Swiss timepieces, has more exposure to Hong Kong than any other luxury company, generating more than a third of the group’s sales in the Greater China region, according to Kepler Cheuvreux analyst Jon Cox.
The maker of Omega watches also has a smaller presence in the steadier luxury categories of jewellery and fashion than rival Richemont, which owns brands including Chloe, Van Cleef & Arpels and Cartier.