Review of 2007

01 April 2008

In years to come, 2007 will undoubtedly be ingrained on economics students' minds as the year of an unprecedented global credit squeeze. Whether it will be remembered with the same notoriety as events like 1987's Black Monday or the Asian currency crisis of 1997 remains to be seen. No doubt someone will advance the theory that years ending in seven are bad news for the markets.

But focusing on the bad news does not give the full picture for last year. Amid all the negativity it is easy to forget that 2007 saw record highs for the markets. In October the Dow hit the high water mark 14280 points, while IC ‘s share index for global crane manufacturers topped-out at 719.75 points in late July, just before the credit crunch bit.

And, despite the falls and volatility that came in the wake of the crisis, many individual equities and benchmarks finished 2007 in positive territory. The Dow was up 7.04% over the course of the year, while the FTSE 100 achieved a more moderate gain of 3.38%. The crane sector was well ahead with a 15.96% annual increase, while only the Nikkei 225 had a bad year, with a 10.44% fall.

Although these gains were to be welcomed, they were a long way behind the achievements of 2006 when the Dow was up 14.5%, the FTSE 100 rose 8.5% and the crane sector leapt a massive 56.9%. As in 2007, the Nikkei lost ground in 2006, but its fall was a little more limited at 6.44%.

Crane shares

As the overall IC share index suggests, 2007 was, on the whole, a good year for crane manufacturers' equities. Manitowoc led the way with a massive 76.1% increase in its value, and the company performed a two-for-one stock split in the third quarter of the year to double the availability of its shares.

Other gains in the sector were more moderate, and clustered around the 10% mark. This included Hitachi, which bucked the trend for Japanese shares with a gain, while there were losses for its domestic peer group of Kobe Steel and Tadano.

But again, these performances were a long way behind the gains of 2006, when Konecranes, Manitowoc and Terex all saw share price rises in excess of 100%.

Currencies

As far as the currency markets were concerned, the story of 2007 was the continued depreciation of the US Dollar. This was most pronounced against the Euro, with a net fall of more than 10%, coming on the back of the 8% decline seen in 2006.

The Dollar also lost ground to the Yen, having gained against it in 2006. It finished 2007 down 4.4% at US$1 = JPY 114. The significance of this is debatable, as the Japanese Government has an interventionist policy towards its currency which has rarely seen it move outside the US$ 1 = JPY 110 to 120 band in the last three years.

Unlike 2006, when it lost more than 10% against the Pound, 2007 saw a more benign relationship between the Greenback and Sterling. Although the psychological threshold of US$ 2 to the Pound was crossed, the net loss was only 2.3%, with both the UK and the US facing a similar economic outlook of slowing growth, falling interest rates and large deficits.

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