TODAY’S FAYRE – PM MAY, MARKET OUTLOOK & ARAMCO

TODAY’S FAYRE – Tuesday, 6th September 2016

 

I said to Love, “It is not now as in old days When men adored thee and thy ways  ll else above; Named thee the Boy, the Bright, the One Who spread a heaven beneath the sun,” I said to Love. I said to him, “We now know more of thee than then; We were but weak in judgment when, With hearts abrim, We clamoured thee that thou would’st please Inflict on us thine agonies,”

I said to him. I said to Love, “Thou art not young, thou art not fair, No faery darts, no cherub air, Nor swan, nor dove Are thine; but features pitiless, And iron daggers of distress,” I said to Love. “Depart then, Love! . . . – Man’s race shall end, dost threaten thou? The age to come the man of now Know nothing of? – We fear not such a threat from thee; We are too old in apathy! Mankind shall cease.–So let it be,” I said to Love.”

    Thomas Hardy – author & poet – 1840 –1928

 

I am going to be one of the few observers to stand up for Theresa May, our Prime Minister. OK, so she didn’t look the most natural performer on the international stage of diplomacy, but in the circumstances I thought she gave a very good account of herself. Apart from ITV’S Robert Peston, who gave her performance cautious approval, the rest of TV media virtually stripped her of her raiment.

As PM, Mrs May ‘inherited’ BREXIT. How, in two months can she possibly be expected to have formulated a policy for BREXIT – trade and immigration in particular – when her counterparts in the EU, the US and Asia had gone on holiday; there was no one to talk to – escapes me!! Frankly the timing of the ‘Referendum’ left an awful lot to be desired. There again David Cameron and George Osborne, not for one moment, ever thought the ‘Remain’ camp would lose!

I simply cannot fathom why large parts of the media seem to want to rubbish the government and bury the UK’S potentially exciting prospects going forward, without trace! BREXIT is here! It is very much alive. It would surely be a more sensible option to attempt to make it work for the 60 million people who live on this ‘Sceptred Isle.’

At least we now know that the points system for immigration will not be adopted by the Government and that greater scrutiny will be paid as to who qualifies to enter the UK. One can only hope that Messrs Johnson, Davis & Fox have been busy hiring an army of trade negotiators. Finally, what about President Obama’s performance? – Well he was discourtesy personified to Mrs May, by not including the UK in talks with the EU, bearing in mind the UK continues to pay its dues for at least another 2 years. Special relationship – in our dreams! Perhaps the deliberations with Australia’s PM Malcolm Turnbull and India’s PM Mondi will have triggered a good start to future trade arrangements.

Just for the ‘Doubting Thomases’, Chancellor Merkel is under the cosh, President Hollande is all but ‘dead in the water’ politically, as France turns anti-EU. Holland is also not enamoured with membership, with Greece and Italy both in a financial and political bind! Do we really want to be run by EU bureaucrats against that background?

The Junior Doctor’s mouth-piece – Nadia Masood – Her performance in front of her adoring reactionary supporters reminds me of Arthur Scargill’s distasteful efforts during the miners’ strike in 1984 – truculent, inflammatory, divisive and disingenuous! I hope she never has to look after me. I doubt she would have time to fit her medical duties in with her rousing political narrative!

 

It was Labor Day yesterday. So global markets were a little short of guidance; well those who wanted it from the largest economy in the world were left high and dry. It was a relatively inauspicious day in London, despite bazooka Service sector data for the UK – the best monthly increase for 20 years, but as we must constantly remind ourselves – ‘One swallow does not make a summer!’ The banks received another poor bill of health from Deutsche Bank which took 3% off RBS and 2% off Lloyds Banking Group. The FTSE 100 lost 15 points to 6879. There was little else for the market to get its teeth in to! We hear this morning that Bayer has upped the ante for Monsanto from $125 a share to $127.50 per share valuing the operation at $65 billion. There were decent numbers from Redrow – +5.5% and Berkeley +3.25% at the time of writing. Numbers from Halfords were solid and at 8.33am the FTSE 100 was down 3 points at 6875. In Asia, without the influence of the Street of Dreams the session proved to be fairly uneventful – The ASX closed down 0.3% and the NIKKEI was up 0.25%. After lunch the Shanghai Composite was up 0.6% with the Hang Seng 0.4% to the good.

Panmure’s excellent chief economist, Simon French assiduously points that the earnings outlook on both sides of the pond is far from exciting. He points out –

“Across the UK equities space we are now five quarters into an earnings recession and two quarters old, if you exclude the resources sectors. Across in the US non resource earnings continue to grow but they also have a total market earnings recession that is four quarters old. This focuses on all the recent upward equity market momentum being a compression of bond yields and a flattening of the yield curve rather than underling macro strength.”

 

 earnings

 

 

 

 

 

 

 

It was recently brought to my attention from a very reliable source that LINDO investment bankers have been on high alert ever since the Saudi government announced its plans in January this year to sell a 5% stake the national oil company Aramco, the world’s largest energy company. The $100bn plus IPO of Aramco would be the largest listing in history, dwarfing Alibaba’s $25bn New York deal. With an IPO of such size, it’s unlikely that Saudi Arabia’s strong domestic investor base could absorb all of the demand and an overseas listing has been proposed. Competition is intense, and the London Stock Exchange should pull out the stops to win it.

 

The Saudi exchange, the Tadawul, is simply too small and too shallow to absorb such a mammoth IPO; its market capitalisation is around $400bn. Since the start of 2016 it has hosted three IPOs and a follow-on, for a total of $776m equivalent, according to Dealogic data. 

One of the reasons for the IPO, according to some analysts, is to introduce new levels of transparency into the energy sector in the Kingdom – London, or New York, would do most for this objective. 

But it won’t be a two horse race. As Saudi pivots away from the West towards Asia it’s not surprising that China is angling for a dual listing of Aramco that would put its shares on both the Hong Kong and Saudi exchanges in return for anchor investments from the Chinese funds.

The Hong Kong exchange had IPOs worth $34bn last year, surpassing the $30bn raised in the US. Winning the mandate would boost Hong Kong stature still further. Moreover, 16% of Chinese oil imports are from Saudi Arabia so establishing a stake in Aramco could further increase the synergies between the countries. Saudi and China signed 15 MoUs on the sidelines of the G20 in Huanzhou, with several in the energy and petrochemicals sectors.

The obstacle facing Hong Kong is that Saudi Arabia is currently not one of the 28 jurisdictions recognised by the Stock Exchange of Hong Kong. Fast tracking the change might be a stretch. 

The benefits to the City of London would be considerable – in addition to bragging rights for the biggest IPO in history, it would give London a much needed boost to cement its place as arguably the world’s leading financial capital even after the Brexit vote.

 

UK companies posting results today – Redrow, Applegreen, DS Smith, Halfords, Ashmore, Berkeley Group – US – Casey’s General Stores

David Buik

Market Commentator – Panmure Gordon & Co

+44 (0)20 7886 2775

Mobile – 0044 7788 144 877

Panmure Gordon & Co

One New Change | London | EC4M 9AF | United Kingdom

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