China stock collapse: It's a 30-year growth story, says Sir Martin Sorrell, so don't overreact

Advertising giant says: 'I am an unabashed bull'

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The Independent Online

Sir Martin Sorrell remains an avowed "raging bull" on China despite the recent collapse in its stock markets.

“I am an unabashed bull,” he said as the advertising giant reported a 12 per cent rise in headline profits to £596m in the first half of the year. “You have to be an optimist in our industry. China is a 30-year growth story yet everyone jumps up and down about one quarter of decline.

“Clearly their stock market was and is overvalued and there are concerns about indebtedness and the switch to a consumer-driven economy. But we are still forecasting 3.8 per cent growth for our mainland China revenues this year against 3.9 per cent last year and we saw 5 per cent growth in July.”

Across the group, WPP had 2.3 per cent like-for-like sales growth, with reported billings up 5 per cent to £23.2bn. Sir Martin said the group was performing strongly in the current “tsunami” of advertisers repitching their accounts. He said: “It’s hand-to-hand combat out there with consumer groups having no pricing power because of low inflation so they are looking at marketing and advertising costs.”

July saw a strong upturn, he said, with like-for-like growth doubling from the previous first-half’s 2.5 per cent to 5 per cent, and he is optimistic that this will continue through the second half, if not quite so strongly.

But first-half results showed that developed economies performing better than developing ones, with net sales growth of 3.5 per cent in North America in the second quarter, compared with just 0.7 per cent from Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe.

The first half dividend was raised by 37 per cent to 15.91p, putting it more in line with the full year pay-out.

In 2016 the advertising industry will benefit from the so-called “maxi-quadrennial effect” of the Olympics, Paralympics, US Presidential Election and Uefa Euro Championship. Sir Martin said: “Whatever else, Rio will be a visually stunning games while the Presidential election is always a stimulus.”

In the UK Sir Martin is still concerned about the potential for damage from the EU referendum, and longer term the Conservative handover of power from David Cameron to George Osborne is worth keeping an eye on, he says.

Higher up his agenda than either China or the UK are what he calls the “current currency wars”. The devaluation of the yen, the euro and then the yuan, Sir Martin said, had pushed up sterling so much that it was even stronger against the dollar, which the group had not expected this year. He reckons the chances of the US Federal Reserve raising rates this year are now negligible and that the Bank of England will not move until that has happened in 2016.

Richard Hunter, head of equities at Hargreaves Lansdown, said: “WPP’s ongoing ability to navigate treacherous economic conditions is likely to consolidate its favoured market rating, with the consensus of the shares as a strong buy likely to remain intact.”

WPP shares ended down nearly 4 per cent, or 51p, at 1,311p.