Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 13/6/11

with 4 comments

Haven’t been blogging for the past few days as my stag weekend successfully competed for my attention against the financial markets! While it was in London, I did my bit for Ireland Inc by flying Ryanair and staying in a hotel that is now under the control of NAMA.

 

As regular blog readers will know, I’ve been extremely cautious around equity markets for some time, and this caution has proved warranted. All of the ingredients remain in place for continued weak performance over the coming months, with concerns about the strength of the US economic recovery (not helped by weak jobs data), further evidence of a slowdown in China (note the decline in new loans in this article) and the ongoing European debt crisis showing no signs of going away. This is a good primer on the challenges the market faces.

 

In the US, I note that Fitch is threatening to downgrade its AAA rating if the country’s debt ceiling isn’t raised. I’ve previously noted that the Federal Government is running an unsustainable deficit of 10% of GDP, and again I ask how borrowing more is going to solve America’s debt problems. I suspect we’ll be hearing a lot more rhetoric like this before the year is out – not that America isn’t justified in complaining about its European allies. The Financial Times reported over the weekend that the US share of total NATO defence spending has climbed from 50% in 2001 to 75% today, with EU member states having slashed defence spending by $45bn in the past two years – that’s equivalent to Germany’s total annual spend. Elsewhere, expectations that QE3 will be launched by the Fed continue to rise, as evidenced by this chart.

 

The received wisdom about Spain being “different” to the rest of peripheral Europe continues despite alarming reports such as this.

 

The social networking bubble continues to baffle me, and I would concur with the views of Forrester’s Mulpuru about the valuation being applied to Groupon.

 

From an Irish corporate perspective, I note that shares in PetroNeft continue to drift after its disappointing operations update, following which Goodbody cut its NAV valuation (from 81.9p to 77.5p) and 2011 production (3.9k to 3.4k/day) forecasts.  I’ve been a shareholder in this stock for some time, and while I think it’s very cheap when measured on an EV/BOE basis, I can see from the share price that I’m not alone in being disappointed by poor production levels. Hopefully we’ll see improving output trends later on in the year.

 

Staying with corporate Ireland, I was pleased to see that the Irish Stock Exchange is to see its first new listing since – I believe – Merrion Pharma joined the market in December 2007. Continental Farmers Group counts Origin Enterprises plc as its largest shareholder and the board contains heavy hitters such as Peter Priestley and former UK Foreign Secretary Malcolm Rifkind. Given the structural drivers around the agri sector and with Origin’s agronomy expertise underpinning its assets, it looks like an interesting addition to the ESM. One to definitely keep an eye on.

 

I’m afraid to click on any links to stories relating to the Irish banks at the best of times, but this one is an important read.

 

And for the final corporate Ireland update, I note positive noises from Kingfisher and Michelmersh about Poland and the UK respectively, which bode well for CRH’s operations in those markets (Disclaimer: I’m a shareholder in CRH).

 

Finally, this is surreal – a James Bond parody featuring Tessa Jowell, Wikipedia’s Jimmy Wales & Ocado’s Jason Gissing

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4 Responses

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  1. […] an interesting footnote to the impending listing of Continental Farmers Group, a stock I’ve mentioned before. According to NCB’s number crunching, Origin Enterprises’ stake  is worth just […]

  2. […] Facebook has postponed its IPO to late 2012. Does this herald the end of the social media bubble I wrote about recently? Advertisement LD_AddCustomAttr("AdOpt", "0"); LD_AddCustomAttr("Origin", "other"); […]

  3. […] the realities of Spain’s property market, which I’ve blogged about before here and here. Unsurprisingly, I see no reason to own any bank with material exposure to […]

  4. […] The main focus since my last wrap has been the troubling developments in Spain. There is a sense of déjà vu about that for Irish people, especially given the initial hollow denials and now the failure to grasp the nettle about the scale of the problem. It is implausible that Spain, with its circa €1trn GDP, needs ‘only’ €100bn to support its troubled banks, given that Ireland (GDP €161bn) has so far injected over €60bn into its banks (slide 49), not least given that the massive scale of the problems in Spain have been known about for quite some time. […]


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