Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Market Musings 9/10/11

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Since my last update on Friday the main newsflow has been centred on further signs of strain in continental Europe around the sovereigns and the banks.


In terms of the Eurozone’s difficulties, Fitch decided to sneak out a downgrade of Italy’s credit rating on Friday evening, presumably hoping that its Italian offices wouldn’t be attacked by rioters, as opposed to what happened to Moody’s in Milan recently. Today brought news that Merkel and Sarkozy are willing to do “everything necessary” to keep the single currency block intact and recapitalise the banks. This stance is, of course, regardless of the cost to the taxpayer. Speaking of costs to the taxpayer, Belgium’s government has reportedly decided to nationalise Dexia’s consumer bank in that country and guarantee €72bn of Dexia’s loans and bonds. This move, if confirmed, will surely unsettle investor confidence in Belgium – at the end of 2010 the country’s reported national debt of €341bn was equal to 97% of the country’s GDP, so the Dexia guarantees alone should trouble anyone with a long position in Belgian sovereign debt if press reports prove to be on the money (at the time of writing there was some conflict in the reports I was seeing out of Belgium). In any event, today’s developments are also a reminder of how woeful the European banking stress tests were, given that Dexia passed the last round of tests only three months ago with flying colours.


Dublin played host to the Global Irish Economic Forum over the weekend, which provided plenty of positive headlines around our economy (for a change!). While I wouldn’t be quite so bullish as Taoiseach Enda Kenny was about our country’s medium term economic prospects, there’s no denying that he communicated a strong enterprise-friendly narrative around Ireland to a global audience. The event brought some seriously heavy hitters from a wide range of industries to the capital, who hopefully got some opportunities to properly network with our indigenous entrepreneurs – recall how a pub crawl reportedly helped swing the recent Twitter investment our way!


Looking ahead to this week, there’s little by way of scheduled corporate newsflow in Ireland. In the UK, the recruitment sector will be in focus due to Q3 trading updates from Michael Page International and Robert Walters. Investors interested in the UK construction sector should also watch for builders’ merchant group Travis Perkins‘ IMS (Irish investors should note that Travis is a peer of Grafton Group). Speaking of stocks that provide read-across to Irish listed companies, Ladbrokes is also due to issue an update. Paddy Power shareholders should take note of their comments, given that the two compete across a range of platforms (shop, internet, phone) in the UK and Ireland.


And finally, one of my followers on Twitter asked me to clarify what is the difference between a “Buy” recommendation and an “Add” recommendation from stockbrokers. An official definition from one Irish broker can be found here, but I prefer this alternative definition from an analyst friend:


“‘Buy’ means love the company, love the price. ‘Add’ means love the company, hate the price. ‘Reduce’ means hate the company, love the price. ‘Sell’ means hate the company, hate the price.”


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