Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 19/9/11

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The demands of the MBA and my work for Business & Finance (I’ve two articles due this week!) have meant that I haven’t been following newsflow as closely I would have liked to, but despite that what I’ve missed out on in terms of quantity has been more than compensated for by the quality of what I have seen!


Firstly, this is something to watch out for regarding the food sector. I note that, ceteris paribus, base effects for food inflation will become much more benign in Q4 of this year. Obviously in absolute terms agri-commodity prices are at elevated levels, but a leveling off in the inflation rate could see a more positive tone from some food companies between now and year-end. Speaking of food companies, Irish investors should keep an eye out for full-year results from Origin Enterprises on Thursday. Given the positive market backdrop for its core agri-services unit, I expect an upbeat tone to results, while investors will also be looking for an update on how the re-organisation of its food unit is going along with news on how the integration of its recently acquired agronomy and fertiliser units is progressing.


I’ve warned about this before – The Daily Telegraph writes that China faces its own subprime credit bubble crisis. Another person who shares my concerns around China is Hugh Hendry. I previously posted this video that sets out some of Hendry’s concerns, and I was unsurprised to read of how well his fund is doing this year on the back of his bearish conviction on China.


I was rather exasperated to read some online criticism of the Irish government’s decision to award a roadbuilding contract to a foreign concern. The criticism started and finished with the nationality of the business that secured the contract, which led me to wonder aloud: Do the people who criticise the Irish government for awarding contracts to foreign companies also complain when Irish firms win foreign contracts? There are two aspects to this really. Firstly, the Irish government has a moral obligation to taxpayers to deliver value-for-money on contracts, so there’s no sense in passing on a cheaper alternative solely to give a dig-out to a domestic firm. As an aside, several people made the point to me that successive governments’ procurement record hasn’t been particularly encouraging (PPARS, e-voting etc.), so obviously there’s scope for improving the entire tendering process for State contracts. Secondly, many Irish firms have proven successful at winning contracts from foreign governments, particularly on the IT side, while elsewhere did you know that CRH is the largest asphalt provider in North America? Adopting a “Little Irelander” procurement policy could endanger some of the international work won by our own companies. So, let’s not cut off our nose to spite our face.


UBS provided an update on its rogue trader problems. I wrote about this on Saturday morning, and following on from my comments about the failings of its internal auditors I got an interesting comment from a regular reader of this blog. He makes the valid point that:


“Having worked for a large financial institution as an internal auditor, I can tell you internal auditors often spot things like this and are put under tremendous pressure, up to the point of threatening dismissal, to forget about these issues and move along.” 


While of course there’s no suggestion that such a thing happened in UBS in this instance, you’d wonder how often has a scenario such as the one my correspondent has sketched out happened in other institutions.


The Financial Times argues that IAG (British Airways & Iberia) is unlikely to bid for Aer Lingus. If IAG are out of the picture, I can’t see the Irish government finding an acceptable (from its perspective) bidder for its 25% stake anytime soon.


Some MBA pointers that I found interesting. Firstly, applications for full-time MBAs have fallen for a third successive year, which is no surprise given economic conditions. Secondly, my beloved Smurfit Business School was featured in today’s Financial Times.


My old friend (or should that be young friend?!!) Sam Bowman had a brilliant op-ed in today’s City AM newspaper. He is a must follow on Twitter.


Another brilliant read is this blogpost on 5 cheap UK stocks by Expecting Value.


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