the Brazilian real had been seen as a major risk for financial markets in the second half of last year. But when it finally arrived, the initial market responses were unexpectedly robust, says Graeme Johnston. Lower interest rates and merger announcements from BAT and Vodafone helped to offset the impact of a string of profit warnings. Although Christmas trading was not as bad as had been feared, these included several from high street retailers, most notably Marks and Spencer.
European markets made the strongest start to the new year. Significant institutional demand had been pent up since December as a result of trading bans imposed in preparation for the introduction of the single currency.
This strength was quickly reversed on the announcement of the Brazilian devaluation, but Wall Street’s resilience protected against further collapse.
Although rates were cut again in the UK, they remained on hold elsewhere in Europe and in America. However, investors generally remain confident that central banks will ease policy further if the Brazilian crisis threatens to spread.
The euro made a trouble-free debut as the attention of the currency markets was focused on the continuing strength of the yen. The Japanese government finally intervened when the yen-dollar exchange rate fell below 110, a 35% rise in the yen since August last year.
Market data supplied by Britannia Asset Management Ltd. Tel. (0141) 248 2000.
Expressions of opinion contained within this document are subject to change. Britannia Asset Management Ltd is the holding company of Britannia Investment Managers Ltd (Regulated by IMRO).
Yield curves: Bloomberg; others: Datastream/ICV.
SURVEYOR: TOUGH ON GLOOM, TOUGH ON THE CAUSES OF GLOOM
Increase in number of UK articles mentioning “meltdown”, 1996 to 1998 – 319%
Ditto world articles, 1996 to 1998 – 821%
Total number of world press articles mentioning “meltdown”, 1998 – 11,928
PROPERTY’S FIRM FOUNDATIONS
Proportion of firms expecting to increase property holdings in next 6 months – 27%
Ditto expecting a decrease in property holdings – 15%
Average return on commercial property (rents plus capital growth), 1998 – 11.5%
Ditto, 1997 – 15.2%
Source: CBI/GVA Grimley; Richard Ellis Research Consultancy.
THE WORLD IS YOUR SHOPPING BASKET
Proportion of European companies which have adopted some level of global purchasing – 77%
Proportion of UK companies that consider their corporate culture to be unsuited to global purchasing – 33%
Ditto, companies across Europe – 17%
Proportion of purchasing managers who will review suppliers in light of price transparency in Euroland – 64%
Source: American Express
SPINNING (ON) THE WEB
Number of FTSE-100 companies without web site – 9
FTSE-100 companies that include financial information on a web site – 63
Ditto, which published a corporate governance report on the web, 1997 – 12
Ditto, 1998 – 25
Source: Deloitte & Touche
VALUE’S WHERE THE PROFITS ARE?
Proportion of total sales by leading UK companies derived from value-consuming business units – 11%
Average number of underperforming units in leading UK firms – 3
Proportion of directors blaming external factors for under-performance – 77%
Ditto who would solve underperformance by changing management – 53%
Ditto who would solve underperformance by selling the unit(s) – 38%
RISKY BUSINESS IN EUROPE
Proportion of European (excluding UK) companies which claim to have assessed major risks – 97%
Ditto which expressed confidence in their risk control systems – 45%
Ditto which have a appointed a designated risk manager – 45%
Source: Ernst & Young
HER NAME IS RIO AND SHE DANCES ON THE SAND
Total exposure of US commercial banks to Brazil – #22.4bn
IMF loan to Brazil in 1998 – #25.1bn
Total losses on London Stock Exchange on the day Brazil devalued – #51bn
Source: The Economist, Evening Standard
TIMEWATCH (10am, 28.01.99)
Number of days left to issue press releases on imminence of year 2000 – 337
EURO CONVERSION RATES:
E1 = DM1.95583