IC December 2008 business news

05 March 2009

More losses were generally the order of the day for share prices in November, although there was nothing on the scale of the massive declines seen in October. In fact there were some encouraging signs in some quarters - no rallies as such but, at least, some stability seemed to be returning after the freefall of September and October.

The good news from the last four weeks has been in the UK, where share prices seem to have bottomed-out for now at least. The FTSE 100 managed a marginal 0.52% rise between weeks 42 and 46 as evidence of this. But elsewhere prices continued to fall. The Dow was down 4.01% over the same period, and the Nikkei had a steeper drop of 5.36%.

Unfortunately the climate of further share price losses was reflected in the crane sector, with IC's share index dropping 13.1% to 196.64 points. The last time the index was below 200 points was October 2004.

As one would expect, the sharp drop in the index was due to losses for almost all of the companies it comprises. Only Tadano saw its share price rise over the course of the four-week period, with a 15.79% increase, very much against the movement of both the lifting sector and the Japanese market as a whole.

The big losers meanwhile were Terex and Manitowoc, which, despite still massive order backlogs each lost some 40% of their value. Weaker profits from Terex contributed to its loss, while Manitowoc was hurt by a net loss in the third quarter relating to currency hedging required for its purchase of Enodis by its Foodservice division.

With a share price of just US$ 6.92 at the end of week 46, Manitowoc's market capitalisation - its share price multiplied by the number of shares outstanding - was US$ 902 million. By any measure of valuation, this is insanely low, particularly given that the company's crane backlog at the end of the third quarter stood at an incredible US$ 3.3 billion.

Although this is an extreme case, it once again illustrates how divorced from reality share prices have become as a result of the panic that has gripped the financial sector. This could mean that when some confidence returns to the market, share prices rebound sharply.

Currencies

It is not just share prices that have gone haywire in the last few months' turmoil. Exchange rates have swung wildly over the last few months as the hitherto weak Dollar has recovered and the previously strong Pound has plummeted.

The Pound's losses are particularly striking, looking back a year. At the end of 2007 the exchange rate was around two Dollars to one Pound. Since then the Pound has lost a massive 37.8% of its value, due to the worsening outlook for the UK economy, it's ballooning deficit and recent sharp cuts in UK interest rates.

But the Dollar has also strengthened against the Euro, putting on 5.74% in the last four weeks alone, and some 15.14% compared to a year ago. The key reason for this is the unwinding of ‘carry trade', whereby investors would borrow Dollars at low interest rates and use them to buy higher yielding assets in other currencies.

This apparent heavy selling of the Dollar depressed its value, but now that people are keen to hang onto their cash at all costs, this distortion of the Dollar is diminishing and it has recovered from its artificially low level.

Outlook

When the recovery comes, it could be sharp, but first markets need to find some stability. There is less volatility now than there was in October, which is a start, but investor confidence remains at a low ebb.

December IC Share Index

Stock Currency Price at start Price at end Change % Change 12 months ago 12 month % change

IC Share Index* 226.04 196.64 -29.40 -13.01 558.26 -64.78

Dow Jones Industrial Average 8852 8497 -355 -4.01 12958 -34.43

FTSE 100 4136 4158 22 0.52 6121 -32.07

Nikkei 225 9006 8523 -483 -5.36 15212 -43.97

Hitachi Construction Machinery YEN 1289 1112 -177 -13.73 3780 -70.58

Konecranes € 13.00 12.02 -0.98 -7.54 26.55 -54.73

Kobe Steel YEN 159 154 -5 -3.14 348 -55.75

Manitowoc US$ 11.89 6.92 -4.97 -41.80 38.82 -82.17

Palfinger € 12.50 11.98 -0.52 -4.16 26.34 -9.04

Tadano YEN 418 484 66 15.79 1215 -60.16

Terex US$ 20.35 12.12 -8.23 -40.44 56.57 -78.58

*IC Share Index, end April 2002 (week 17) = 100

Exchange rates - value of US$

Currency Value at start Value at end Change % Change Value 12 months ago 12 month % change

YEN 101.40 96.66 -4.74 -4.67 110.05 -12.17

0.7428 0.7855 0.0427 5.74 0.6822 15.14

UK£ 0.5778 0.6729 0.0951 16.47 0.4883 37.81

Period: Week 42 - 46

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