May European sharewatch: Signs of Recovery

14 May 2008

Share prices rebounded in April, as some confidence returned to the markets. There were some good increases in prices, but companies are generally still in negative territory for the year to date. Chris Sleight reports.

After the nervousness of March, investors seemed to regain some courage in April, as share prices rose across the board. This all came in the face of yet more bad news from the banking sector, but at the same time there seemed to be a feeling abroad that the worst was finally over.

Write-downs continue to be the order of the day for household names in international finance. Most notable was Credit Suisse, which followed in the footsteps of UBS with a CHF 5,3 billion (€ 3,27 billion) write-down in the first quarter.

Elsewhere in the sector there were rights issues, as banks sold new shares to shore-up their capital positions. Among these was the largest rights issue in UK history, when RBS sold UK£ 12 billion (€ 15,1 billion) of new shares to cover the cost of write-downs and help pay for last year's UK£ 56 billion (€ 70, 5 billion) acquisition of Dutch bank ABN Amro.

But despite these difficult pieces of news in the banking sector, share prices generally rose during April.

Strongest of all was the beleaguered Nikkei 225, which was up + 13,07% between weeks 12 and 17. Over the same period the UK's FTSE 100 gained +10,72%, while the DAX was up +8,56%, the CAC 40 +9,50% and the Dow +6,19%.

Although these were pretty good gains, the steep market fall at the start of the year means all of these indexes are in negative territory for 2008 to date. The closest to breaking even is the Dow, which ended week 17 -1,59% lower than it was at the start of the year. The rest are anywhere from -5,5% adrift to as much as -20% lower than on January 1.


Shares in the construction industry benefited from the general market rally in May. The CET index for the whole industry was up +8,37% to 174,34 points by the end of week 17. But like the wider benchmark indexes, the CET is still in the red for the year to date, standing -7,19% lower than it was at the start of the year.

The strongest rally was seen among contractors, with the CEC Index for this sub-sector rising +11,69% to 204,74 points. This was the highest the index has been since the start of February.

Gains were pretty widespread, with Impregilo and Sacyr standing out particularly. Impregilo's +45,71% rise over the five-week period seems to be related to a string of major contract wins in April. These helped bring its share price back from a low ‘blip' at the end of March, which coincided with the announcement of disappointing results for last year.

Sacyr's gain was linked to the final chapter in its two-year saga with Eiffage. As reported in this month's business pages, having failed to acquire the French contractor a year ago, the legal wrangles have finally been resolved, and Sacyr has found buyers for its 33,32% holding in Eiffage.

However, it was not all good news for contractors. In the UK the allegations by the Office of Fair Trading (OFT) of price fixing by 112 contractors had a significant impact on shares in those companies named. Outside of this action, UK residential builders like Taylor Wimpey suffered losses on fresh evidence of a slowing housing market.

In share price terms, it looks like NCC had the biggest loss - -18,55% - in the sector over the five week period. However, the ex-dividend date for its ordinary SEK 11.00 (€ 1,18) dividend as well as an extraordinary SEK 10,00 (€ 1,07) dividend fell in week 15, effectively wiping SEK 21,00 (€ 2,25) off its share price.


The equipment sector also had a good five weeks, with a rise of +7,43% for the CEE Index to 215,67 points. The key driver for this was Caterpillar, the undisputed no.1 in the global market, and a company that makes up about 20% of the CEE due to its high capitalisation.

Strong first quarter results from Cat showed that it was managing to increase profits and sales despite continued difficult market conditions in the US. Its dominance means Cat is something of a bellwether for the sector, so its strong performance helped pull up others' share prices.

Besides Caterpillar, Terex bounced well on the release of its first quarter results, but not so Metso. Although the Finnish manufacturer announced higher sales and profits compare to the first three months of 2007, growth was below market expectations, and the share price suffered as a result.

CNH found itself in a similar position, with results that disappointed the markets. Ironically, the company's agricultural equipment arm is finding it hard to keep up with demand for machines in the wake of the global boom in food prices, while its construction equipment businesses are suffering from the slowdown in North America.

Apart from this handful of disappointing results, it was a good few weeks for the sector, with many companies seeing double-digit share price rises.

As is so often the case, the materials sector lagged behind contractors and equipment manufacturers. Between weeks 12 and 17 it rose +6,72% to 1`27,98 points.

Having said that, the growth was widespread, with Italcementi and Schindler doing particularly well, and only CRH seeing a moderate fall in its share price. In Italcementi's case, the market's reacted well to the sale of its Turkish businesses to Russia's Sibirskiy. The cash and shares deal will give Italcementi a 5,4% stake in Sibirskiy, opening the door for its expansion into Russia and the CIS.

More simply, Schindler's price rise was due to better than expected full-year results, which were announced in week 17.


The Euro strengthened yet again in April, and towards the end of the month it passed two hurdles of being valued above US$ 1,60 and UK£ 0,80. However, the currency fell back following these to finish the week 12 to 17 period with net gains of less than +1% against both.

When it passed these two important psychological benchmarks, more concerns were voiced that the Euro has appreciated too far, with an excessive value that will damage Euro-zone competitiveness in the global market. Of course these concerns helped the Euro fall back a little in week 17.

But elsewhere in Europe, the Euro generally fell again in April, most notably against the Polish Zloty and Romanian Lei.


Despite continued bad news from the banking sector, confidence seems to be coming back to the markets. It seems that investors have become relatively immune to this issues, perhaps feeling that the worst of the credit squeeze is now in the past.

It can only be hoped that this cautious optimism continues. Although new announcements of write-downs keep coming, and will probably continue to, there are grounds to hope the markets have turned the corner.

Key Indexes
Index Beginning of period End of period Change Change (%)
CEE (Equipment) 200.76 215.67 14.91 7.43
CEM (Materials) 119.92 127.98 8.06 6.72
CEC (Contractors) 183.32 204.74 21.42 11.69
CET (Total) 160.87 174.34 13.47 8.37
Dow 12100 12849 749 6.19
FTSE 100 5488 6077 589 10.72
Nikkei 225 12260 13863 1603 13.07
CAC 40 4528 4959 430 9.50
DAX Xetra 6335 6877 542 8.56
Period: Week 12 - 17
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