Review of 2005

25 April 2008

The last few months of 2005 saw the Dow Jones Index rally a little to close-out the year with a 12 month rise of just 2.13%. Growth is growth, but this small gain was small compared to the performance of other markets around the world last year.

Japanese stocks were the investment of choice, particularly in the second half of the year, when a sharp rally sent prices skywards. Over the course of 2005 the broad Topix 500 Index achieved a net gain of 42.56%, and other benchmarks like the Nikkei 225 were similarly strong.

It was also a good year for European bourses, with the UK's FTSE 100 gaining just over 17%. Other blue-chip benchmark indexes in the region were also up-beat with France's CAC 40 gaining more than 24% and Germany's DAX putting on some 28% in value.

But these gains were dwarfed by the crane manufacturing sector, with IC's Share Index advancing more than 50% over the course of 2005. It finished the year on 328.53 points - an all time high, and more than 100 points higher than it had been 12 months previously.

To a certain extent the trends that were seen in the wider market were reflected in the lifting sector, with the biggest gains coming from Japan's crane fraternity. Kobe Steel saw its share price leap 150% in 2005, with Tadano not far behind on 132%, and Hitachi just falling short of the 100% mark.

Although more subdued, the two European manufacturers also enjoyed good gains, with Palfinger's 47% rise standing out in particular. Perhaps more interestingly, though, the two major US manufacturers managed to buck the trend on the domestic stock markets.

Manitowoc's share price increased by just over 40% in the course of the year, and Terex achieved a 35% gain. Impressive in the context of the Dow's meagre rise, and similar stagnation for benchmarks like the NASDAQ and S&P 500, which only put on about 5% in 2005.

Currencies

It was also a year of appreciation for the US Dollar. Having fallen sharply from 2002 to 2004, 2005 saw it climb again. Gains of 11.9% and 11.2% were recorded against the Yen and the Euro, while it rose 7.72% against the pound. This was all due to the Fed's aggressive and consistent 0.25% monthly hikes in interest rates.

Outlook

The strong performance of the crane sector is clearly connected to market buoyancy. Worldwide demand for cranes increased sharply in 2005, much faster than manufacturers could build machines judging from to lead-times and backlogs. More importantly though, this surge in sales was accompanied by improving profitability in the sector, which is the key factor that drives share prices.

The question is of course, how long will the boom continue?

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