Crane Cave-In

08 May 2008

As the year has worn on, the initial buoyancy of the world's stock markets has been replaced by more pessimistic sentiment. The Dow has been particularly badly affected, with US interest rate rises, high oil prices and some worrying economic data depressing the Index.

The Dow lost 2.27 % of its value between weeks 12 and 16, to finish at 10219 points. This fall was reflected in other indicators around the world, with the UK FTSE 100 losing 1.08 % and the Japanese Topix 500 sinking a more serious 5.23 points.

More worrying though is the Dow's lack of gains over the longer term. Its current level shows only marginal growth of 0.31 % from the position 12 months ago, and this is in sharp contrast to the FTSE, which gained almost 10 % in the year from week 16 2004. The Topix 500, however, is suffering worse than the Dow, with a 1.66 % 12-month loss.

Crane shares

Although IC's crane share Index had weathered earlier market falls reasonably well, the Dow's more recent slide had a marked effect. The Index lost 6.12 % of its value in the month under review. Its end-point of 213.95 points was the lowest it has been this year.

Almost all the companies on the index saw their share prices drop over the four weeks. Only Palfinger managed a moderate gain, while Kobe Steel was unmoved. The biggest loss was for Terex, which dropped 12.44 %, with the remaining companies in the Index grouped together on 5 to 7 % declines.

But while it was not a month that investors in the sector will remember with any great fondness, the crane industry is still performing outstandingly over the longer term. Despite its recent losses, the IC Index remains16.29 % higher than it was 12 months ago, a performance that none of the mainstream indexes come close to.

As with the Dow, it was a disappointing four weeks for the Dollar. Having shown signs of strengthening in March, it lost 0.67 % and 2.05 % to the Euro and Pound, respectively. There was a 1.03 % strengthening against the Yen, but the US currency, like its stock markets, looks woefully weak at the moment.

Outlook

Although the Dow has taken a battering in recent weeks, it looks like this may be an over reaction to the perceived downward pressures. As IC went to press, first quarter results were beginning to come in for many US companies, and these would seem to say that end-markets are, if anything, strengthening.

Caterpillar, which is a classic cyclical company and should therefore be an early warning of an economic downturn, had a spectacular start to the year. Its net profit was up 38 % compared to Q1 2004, and sales grew 29 % to US$ 8.34 billion. These results prompted the company to raise its full-year sales forecast to a 16 % to 18 % increase on 2004.

This was a promising sign, and if results in the crane sector can also beat analysts' expectations, the IC Share Index will surely rise.

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