Articles

May 2013 Market Commentary

02.05.2013

“No news is good news” as the old saying goes. By that definition, April was a good month in that there were no disasters. Europe remained relatively stable, Cyprus didn’t implode, Barack Obama and Congress continued speaking to each other and Kim Jong-un kept his finger off the trigger.

Mind you, the International Monetary Fund did their best to spoil the fun, warning of new risks to global financial stability even before the old ones have been dealt with. Jose Vinals, the IMF financial counsellor, warned that Europe’s problems were still a long way from being solved and went one step further by identifying three new threats to the global recovery:

  • Weak underwriting of corporate debt in the USA
  • Cheap money from the developing nations de-stabilising the emerging markets
  • And the problems involved in ‘unwinding’ the widespread use of quantitative easing

“Put simply,” Snr Vinals said, “We are in uncharted territory.” Regular readers of this monthly review may well think we’ve been in ‘uncharted territory’ for some time.

Most of the world’s major stock markets were relatively unchanged or moved fractionally ahead through April. The exceptions were Japan, which had a remarkably good month, and Russia, where the stock market fell by 5% during April.

UK

In the UK, the controversy about how little tax is paid by foreign owned companies rumbled on. This time Amazon, Facebook and Starbucks took a back seat as attention turned to the foreign owned energy companies. The Guardian highlighted the case of RWE npower, which paid no corporation tax at all between 2009 and 2011, whilst Scottish Power paid only £102m on profits of £1.2bn, despite the lowest corporate tax rate being 20%.

Another company to be in the spotlight for the wrong reasons was Tesco, with profits down for the first time in 20 years after it took a £1bn hit to leave the USA, having failed spectacularly with its Fresh and Easy chain.

In marked contrast Primark, the high street clothing chain, recorded a significant jump in profits. As its rivals have rushed to the internet and embraced iPhone apps and home delivery, Primark has stayed resolutely rooted in the high street – so far it seems to be a move that is paying off.

The ‘Biggest Sigh of Relief Award’ for April went to Chancellor George Osborne, with the UK managing to avoid the ignominy of a triple-dip recession. When the figures for the first quarter of 2013 were revealed there had been a 0.3% growth in the UK GDP. Not surprisingly, the Chancellor was quick to hail the news as evidence that his policies were working.

The FTSE-100 index appeared to be less than convinced: having started the month at 6,411, it ended April at 6,430 – to all intents and purposes unchanged.

Europe

Over the past few months this bulletin has often highlighted the problems – current and potential – of European unemployment. This month there was further bad news, with unemployment in France reaching a new high of 3.2m (up over 11% in the past year) and more than 6m people unemployed in Spain. The jobless rate there is now over 12% and with the country’s GDP falling by another 0.5% there is no prospect of a recovery any time soon.

There was even bad news for those working in Spain and Italy, as one of Angela Merkel’s advisers raised the prospect of a tax-on-savings solution should either country need a bailout in the future. As we said last month, now the idea has been tried in Cyprus, it will always be an option.

But the biggest crisis for the EU in April was not political or economic – but simply one of trust. A poll conducted by Eurobarometer, the EU’s own polling organisation, found a substantial decline in trust with those taking part feeling that the handling of the financial crisis had come at the expense of national democracy. Not surprisingly the falls were biggest in Spain and Italy, whilst the country that recorded the biggest level of trust for the EU was the UK. If that’s the case, you can only worry about the feeling in the rest of Europe.

Both the French and German stock markets moved marginally ahead in April, up 3% and 2% respectively, but the biggest gains were seen in the countries with the biggest problems. Spain was up by 6.7% in the month, and our old favourite Greece rose by 13%.

US

The Dow Jones index has been one of the success stories of 2013. It started the year at 13,104 and now stands at 14,840 – a rise of 13% in four months, including a further 2% rise in April.

This rise reflects the buoyant performance of the US economy in the first quarter of the year, with growth at 2.5%, largely thanks to consumer spending. The figure was lower than some analysts’ expectations, but well up on the 0.4% rise in the final quarter of 2012.

Meanwhile, all was not well over at Apple headquarters in California. As reported in the Far East section, Samsung’s profits grew dramatically and much of this was at Apple’s expense. Analysts – clearly having watched re-runs of Monty Python – are now talking about Apple being an ‘ex-growth’ company.

Far East

Leaving aside the smaller, emerging markets, the star performer of world stock markets so far this year has been Japan. The market is up by 33% in the first four months of 2013, with April bringing a further rise of 12%. Early in the month the Bank of Japan released details of a plan to stimulate the economy which pushed the Nikkei Dow to a 5 year high of 13,226. However the Japanese stock market continued to forge ahead, ending the month at 13,861.

By the end of April, the Bank of Japan had lifted its full year growth forecast from 2.3% to 2.9%, with inflation also due to rise slightly to 0.7%.

The dispute between North and South Korea continued to simmer, albeit on a slightly lower heat than in previous months. To no-one’s surprise South Korea withdrew its workers from the shared facility at Keasong: in the long run this should impact adversely on the North’s foreign currency earnings.

As reported above, Samsung’s first quarter profits soared 41% to £4.2bn, thanks to a surge in smartphones and tablets. This was slightly below expectations, but will still come as a bitter blow to Apple whose disappointing results represented a first fall in profits for nearly a decade.

Other major Far Eastern markets failed to match the performance of Japan in April. Hong Kong was up 2% to close the month at 22,737 but the Chinese index fell back 3% to end the month at 2,178.

Emerging Markets

Two of the world’s major emerging markets – Brazil and Russia – are significantly down this year, with both of them recording 8% falls since the start of the year. The Russian market lost 5% in April and now stands at 1,363. The Indian market went the other way, however, recording a healthy 4% rise to finish at 19,504.

In Venezuela – a long favourite of this review for its spectacular stock market growth – the anointed heir, Nicolas Maduro, won the election caused by the death of Hugo Chavez. The Venezuelan IBVC index didn’t budge in April, but for those who like big numbers it currently stands at 414,930.

Top performer in the month was Argentina, along with the previously-mentioned Japan and Greece. April’s wooden spoon was comfortably won by Peru, where the stock market fell by 13%.

And finally…

Where to begin? The monkey nuts that were withdrawn from sale as they didn’t have a ‘may contain nuts’ warning? Barack Obama’s grey hair? Caused, we are told, not by that naughty boy in North Korea but by his daughter’s short skirts.

No, sadly, we end with news that the price of lobster is set to rocket by as much as 70% thanks to the cold weather. Apparently they’ve moved further out to sea to keep warm, making them more expensive to catch.

That was April, ladies and gentlemen: a month when you’d have done well if you’d invested in the Japanese stock market – and even better if you’d kept a few lobsters in your bath…

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More than helpful – very approachable. Mrs G - Coventry

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Adrian Smith

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