Wednesday 26 July 2017

Taking stock: how world's markets fared in 2016 - and how this year may shape up

Employees of the Korea Exchange (KRX) pose in front of the final stock price index for 2016. REUTERS
Employees of the Korea Exchange (KRX) pose in front of the final stock price index for 2016. REUTERS

John Lynch

At this time, there is an irresistible tendency to look back at the year just gone and bemoan the missed opportunities - especially for investors. The hapless shareholder almost always asks him/herself, why did I not see this or that coming?

Unusually now, however, the punter need have no such misgivings because the two items with maximum impact, Brexit and Donald Trump, were unpredictable.

US president-elect Donald Trump and his wife Melania. REUTERS
US president-elect Donald Trump and his wife Melania. REUTERS

Nevertheless the punter must learn to accommodate and the companies highlighted in this column in the last few months were viewed from either the Brexit or Trump perspectives.

In today's review, we cast a doleful eye over some of these companies, but I have also been asking myself about possible upsides. One of these may be the composition of the team that Trump has assembled to manage the American economy over the coming years.

Media comment in the US before Christmas focused on the fact that Trump's cabinet team (so far) is the richest ever put together. Some have suggested that the Trump team has a personal wealth of $14bn, that's 34 times the net worth of George W Bush's final cabinet, and is more than the combined wealth of the 43 million poorest inhabitants of the US. Trump's team is also wealthier than the 20 or so sub-Saharan African countries combined.

Because they are wealthy, does it mean they are any good? Does it mean they will be selfless types to bend over backwards to be fair and spread the goodies equally?

BMW, whose shares could benefit from a strong dollar this year
BMW, whose shares could benefit from a strong dollar this year

Or does it mean the cabinet members are so much part of the financial system that they will be no threat to the record-breaking Dow Jones Industrial average? The cynic in me believes that the last view might be true.

Time will tell.

Looking at the companies examined in my Share Watch column in 2016, we put 21 US and Canadian companies under the microscope along with 20 UK and 11 European firms. Irish companies are well covered elsewhere in these pages so this column generally confines itself to 'outsiders'. Of the firms analysed, more than a few disappointed. German retail company Metro was supposed to do a lot better. It offloaded its Kaufhof department stores and its chain of electronic goods, but the shares gained little. UK chain Sainsbury's saw their shares lose value, but I haven't given up on them. The benefits of the Argos acquisition are still likely to accrue.

Apparel retail operations took up some of our attention. The British firm Next saw its shares fall since it was examined last April, thanks to Brexit and the poor retail environment in the UK. Nike, the US sportswear concern, dropped to a level just above its yearly low of $50 because, among other things, it sources its products in Asia, where the strong dollar is a headache. We also examined the prospects for Sports Direct (shortly to open a flagship store in Dublin). This company was exposed for underpayment to its employees. As a result, the share price has halved.

A model in Next clothes. The fashion chain took a hit from Brexit
A model in Next clothes. The fashion chain took a hit from Brexit

Commodity prices continued their comeback in the past year. Sharewatch examined Royal Dutch Shell before it completed a mega deal with the BG group. The share price has held up, its dividends continue to be safe and a strong dollar will help. The major oil service company Schlumberger completed the acquisition of a major valve maker, Cameron, so increasing its competitive position. Investors who got on board mid-year have seen a satisfactory profit. We also liked mining giant Rio Tinto, which since the start of 2016 has doubled in value.

Since the financial collapse eight years ago, most people give a wide berth to bank shares. We bravely tested the waters on two banks/insurance companies, Finland's Sampo and American Express. Sampo is a steady company but its shares showed little movement. American Express got the Trump jump and hit $75, a yearly high.

Healthcare companies are hoping for a boost, given the promises of the new US administration. This would be welcome as companies like Astra Zeneca, Eli Lilly, Novartis and Boston Scientific, all of which have featured in this column, did little. The exception was the Danish drug concern Lundbeck, which saw its share price increase 40pc.

Share Watch also focused on the transportation sector with companies like Stobart, Volvo, TUI, Valeo and the small UK shipping service company Braemar. Volvo performed well but Braemar turned out to be a real Brexit victim. It gave up one third of its value after the referendum shock. Valeo, the French car parts concern, had a modest price increase. TUI, the travel operator, saw its shares decline and Stobart collapsed its deal with City Jet.

Our focus on food and food-related sector included General Mills, MacDonald's, Mondelez and Domino Pizza. Of these, the standout share was Domino Pizza. Its shares are up 60pc on the year, trading at $164. Mondelez shares fell but General Mills shares are up 18pc on the year and it's mentioned as a possible suitor of Mondelez!

The giant US engineering conglomerates Honeywell, GE and United Technologies stand to gain from Trump's election.

Lower taxes and increased military spending should offset the strong dollar problem. GE share was traded in a narrow band but is such a dependable share; it should be in most portfolios.

Honeywell, the maker of aerospace security products, should benefit from the policies of the new administration.

During the year it failed to take over United Technologies, a company we also examined. A maker of jet engines and elevators, its shares gained 30pc in the year.

The big question is, what will this year bring?

Political events will dominate. The strength of the dollar should continue, sterling will fall back, oil shares will gain and US small companies will benefit if 'America First' policy is brought in.

Banks in the United States like Citi and Bank of America will rise if the policy of less regulation is approved.

Shares of car makers Daimler and BMW should gain from the strong dollar, as will education group Pearson and the consumer goods company Nestle.

But investing won't be easy in 2017, it'll be volatile.

Irish Independent

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