Croesus/The investor's view:The general air of uncertainty hovering over the global and domestic economic outlook has if anything intensified in recent weeks. This has led to continued high volatility across virtually all asset categories.
Investors in equity markets have had to endure particularly sharp swings in recent weeks, although movements in the currency markets have been just as noteworthy.
So far, however, most overseas equity markets have not suffered sustained price falls. In many cases, there have been a sufficient number of good days to have mitigated somewhat the bad days.
Unfortunately, positive days on the Irish equity market continue to be a rarity. Over the past month, the major international indices are down about 5 per cent, compared with a decline of about 10 per cent in the underperforming Iseq index.
The story that is emerging from the economic data is one of an impending, possibly sharp, slowdown in the US, but continued robust growth in most Asian and other emerging economies.
Europe sits in the middle, with the pace of growth expected to slow a little, while worries persist that Japan could slip into a recession. Overall, there has been a profound deterioration in expectations regarding prospects for 2008, and investors are having to alter their investment strategies to cope with all of this new information.
The area of greatest uncertainty both at home and abroad remains the property or real estate market and the associated credit markets. Several US banks have taken large write-offs in recent months, so that some hard numbers are beginning to emerge on the scale of bad debt problems across the global banking sector.
HSBC Bank released its third-quarter figures, where it announced a $3.4 billion (€2.3 billion) impairment charge on its US consumer finance business. HSBC describes itself as "the world's local bank", with an international network of more than 10,000 offices in 83 countries. The group has more than 200,000 shareholders across the globe, with its main listing on the London Stock Exchange.
The share price bounced on the results announcement, as revenue growth outside of the US more than offset American losses. Like many quoted companies now, the meeting between management and the professional investment analyst community is broadcast live on the company's website.
Croesus was interested to hear that HSBC's Hong Kong and Chinese businesses are maintaining very strong growth. Regarding their US mortgage book, the bank's comments confirm that the US residential market continues to deteriorate. It is seeing falling real estate values in California, Florida and Boston, with rising delinquencies.
Closer to home, Bank of Ireland reported interim results to the end of September on Wednesday that were at the lower end of market expectations. The bank cut its guidance for profit growth for the year to a high, single-digit percentage rise.
Underlying momentum across the business remains positive, but growth is moderating in line with reduced economic growth in its main markets. The slowdown in the rate of growth in the Irish mortgage book confirms the feeling that activity in the Irish housing market is still deteriorating.
Senior management reiterated the bank's strong capital position and robust funding position underpinned by diversified programmes spread by product, geography, maturity and investor. However, if interbank rates remain at above normal levels, profits in the second half of the year will suffer.
While there were no surprises in the figures, the share price fell quite sharply immediately after the results announcement. It seems that in the absence of any significant good news, investors are going to continue to sell Irish banking shares.
DCC, one of the market's leading mid-capitalisation companies, also reported results during the week. They were well received by the market, with brokers upgrading their profit forecasts. DCC has a diversified mix of businesses, covering energy, healthcare, food and beverages, and environmental interests.
The latter division is small but offers attractive growth prospects giving growing environmental concerns. There are two clouds overshadowing the good underlying business performance. DCC is trying to sell its 50 per cent share in Manor Park Homes, but the deteriorating economic environment must be eating into the valuation. The insider trading case by Fyffes against DCC resulted in a €50 million provision being taken in the half-year. Issues surrounding this case will not be fully resolved until well into 2008.
The shares offer good value, but will need a positive catalyst to perform in the short term.
