Review of 2006

15 April 2008

IC's Share Index ended 2006 at the highest in its near five-year history, at 526.7 points. It has been another remarkable year for the industry, with the Index gaining a massive 56.95% in value over the course of 2006.

This leap was far grater than any experienced by the mainstream indicators, the most buoyant of which was the Dow Jones Industrial Average. After two difficult years in 2004 and 2005, the Dow found its feet again in 2006 and moved up 14.53%. Like the IC Index, the Dow hit a new record as the year closed, with an intra-day high of 12566 points coming on the penultimate day of trading in 2006.

Having held its own for the first quarter of the year, the US Dollar dipped sharply against the Euro and Pound in April. These losses increased as the year progressed, and the Dollar finished 2006 down 10.6% on the Pound and 8.21% against the Euro, compared to its position a year ago.

Although there were marginal gains for the Dollar against the Yen, the Japanese currency fell even more steeply against the Euro and Pound than the Dollar did in 2006. It would perhaps be more accurate to say the Dollar was ‘less weak’ than the Yen in 2006, rather than stronger.

The Dollar's movement last year reflects a perceived difference in economic cycles either side of the Atlantic. Growth is seen as slowing in the US, due partly to the housing market's slump last summer, and this is expected to push the Federal Reserve towards an Interest rate cut sometime in 2007. In contrast, growth seems to be picking up in Europe, with interest rate rises expected to continue as the year unfolds.

If this is the case in 2007, the Dollar will certainly weaken further as it becomes a less attractive investment. This would be a boost for US-based exporters, but will make life difficult for Europeans trying to sell their products in the US and other regions of the world that tie their currencies to the Dollar (of which there are many).

It was also a good year for the UK blue-chip FTSE 100 Index, which gained 8.61% over the course of 2006. It ended the year at its strongest for more than five years but, unlike the Dow, it was still some way short of its all-time high of 6950 points, which it achieved at the end of 1999.

In contrast the Japanese Topix 500 had a nondescript year with virtually no net gain at all.

Crane shares

The relative weakness of the Japanese stock markets last year was reflected by the performance of lifting industry shares. The three weakest performers in the IC Share Index were the three Japanese manufacturers-Hitachi Construction Machinery, Kobe Steel (Kobelco) and Tadano. Having said this, there were reasonable gains of 10.92% and 27.26% for Hitachi and Tadano, respectively, but they were poor in comparison to the rest of the industry.

The parallel with the mainstream indicators was continued in the US, with Manitowoc and Terex leading the field in the crane industry. Manitowoc's share price gain for the year was just over 120%, while Terex was close behind at 115%. Both companies also undertook 2 for 1 stock splits in the course of the year to increase access to their equity.

In between the relative highs and lows in the US and Japan sat the two European manufacturers. KCI Konecranes impressed with a doubling g of its stock market valuation last year, coming close to the two US manufacturers' gains. Palfinger was more subdued, with its share price rising 38.39%-a very good gain overall, but clearly not in the same league as the three 100%-plus risers.

Currencies

Having held its own for the first quarter of the year, the US Dollar dipped sharply against the Euro and Pound in April. These losses increased as the year progressed, and the Dollar finished 2006 down 10.6% on the Pound and 8.21% against the Euro, compared to its position a year ago.

Although there were marginal gains for the Dollar against the Yen, the Japanese currency fell even more steeply against the Euro and Pound than the Dollar did in 2006. It would perhaps be more accurate to say the Dollar was ‘less weak’ than the Yen in 2006, rather than stronger.

The Dollar's movement last year reflects a perceived difference in economic cycles either side of the Atlantic. Growth is seen as slowing in the US, due partly to the housing market's slump last summer, and this is expected to push the Federal Reserve towards an Interest rate cut sometime in 2007. In contrast, growth seems to be picking up in Europe, with interest rate rises expected to continue as the year unfolds.

If this is the case in 2007, the Dollar will certainly weaken further as it becomes a less attractive investment. This would be a boost for US-based exporters, but will make life difficult for Europeans trying to sell their products in the US and other regions of the world that tie their currencies to the Dollar (of which there are many).

Outlook

The general equity markets look set for a nervous time in 2007, and any down-beat data on the US economy is likely to prompt brisk selling of shares. In contrast, high order backlogs in the lifting industry should mean year at least starts well for crane manufacturers. It will be interesting to see if the growth of recent years can be sustained throughout 2007, or whether demand will weaken as the year wears on.

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