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Markets News Friday: Shares rise in Europe; Gates Foundation announces $10bn vaccines fund in Davos; Samsung overtakes HP in global sales
By Finfacts Team
Jan 29, 2010 - 12:36:47 PM
Bill and Melinda Gates announced in Davos, Switzerland, today at the World Economic forum, that their foundation will commit US$10 billion over the next 10 years to help research, develop and deliver vaccines for the world’s poorest countries. “We must make this the decade of vaccines,” said Bill Gates, speaking at the World Economic Forum Annual Meeting.“Vaccines already save and improve millions of lives in developing countries.”
Bill and Melinda Gates were joined at the press conference by Julian Lob-Levyt, Chief Executive Officer of the Global Alliance for Vaccines and Immunisation (the GAVI Alliance), which was launched at the World Economic Forum 10 years ago this week.
Greek Prime Minister George Papandreou on Thursday acknowledged that his country faces a big “credibility gap” over its public finances, but said that the government is taking the measures needed to restore international confidence in its economy. Addressing participants in a session on “Rethinking the Eurozone” at the World Economic Forum Annual Meeting 2010, Papandreou denied that Greece has sought, or is seeking, to raise loans either from its fellow European Union member countries or from China to help meet its financing needs. Spain’s Prime Minister José Luis Rodriguez Zapatero joined Papandreou in asserting that the existence of the euro has helped the zone’s 16 member states weather the international financial crisis. “The Eurozone has been a great support,” Rodriguez Zapatero said.
European Commission and Greece
Bloomberg reports that European Union policy makers have no “plan B” to help Greece, the bloc’s top economic official said, and Greek Finance Minister George Papaconstantinou said he’s not aware of talks of a possible rescue.
“There is no bailout problem,” Monetary Affairs Commissioner Joaquin Almunia said today in an interview with Bloomberg Television at the World Economic Forum’s annual meeting in Davos, Switzerland.“Greece will not default. In the euro area, default does not exist.”
Greek bonds have slumped on speculation the country will need help from the EU to cut the region’s highest budget deficit and tame its rising debt. Prime Minister George Papandreou yesterday said Greece is being victimized by rumors in financial markets and he denied seeking to borrow from European partners.
We are, in some ways, out of the financial crisis, Swedish Finance Minister Anders Borg told CNBC Friday. "That is probably a reason to start to deal with the next crisis which, obviously, in Europe is the public finances… When it comes to public finances, I think the deficit is becoming more and more of a problem":
Goodbody chief economist, Dermot O'Leary, commented today: "Greek bonds took yet another hammering yesterday, as the risks of a full-blown sovereign crisis increased further. Greek ten-year bond yields are now over 7%, the highest level since 1999, while the spread over German bunds rose at one stage to over 4% for the first time since the introduction of the euro. We have commented recently that Ireland has done a lot in decoupling itself from general sovereign concerns, but that did not stop Irish spreads also increasing yesterday. The ten-year spread above bunds though, at 1.65%, is still well below its previous peak reached last year of close to 3%.
The Greeks have put forward proposals to cut the budget deficit by 4% of GDP this year. Given its fraudulent behaviour in relation to the publication of its statistics of late though, the market seems reluctant to believe either that the changes are enough, or indeed they will be followed through with. The next big moment for Greece will come when the European Commission will give its ruling on whether the plans set out are indeed enough in its view. This will happen next week (Wednesday), while the ECB Governing Council will also meet next week (Thursday). There is already press speculation this morning that some of the bigger member states have begun discussing some sort of bailout, although this has already been denied by some EU policymakers overnight.
Greece will achieve the goal set out by the European Stability and Growth Pact of reducing its budget deficit to below 3% of GDP by 2012, European Central Bank President Jean-Claude Trichet told CNBC in Davos Thursday:
With a no-bailout clause contained in the EU constitution, there are some hurdles to get over if this is the route, but there is also part of the Constitution that allows the EU to grant emergency assistance to a particularly troubled member state. This is the most likely scenario in our view if the recent turbulence was to continue because of the ramifications for the rest of the euro-area were one member state to default. Fortunately, Ireland is in a comfortable situation as regards its rather large, although not as large as Greece’s, funding needs. With €5bn carried over from last year, a further €6.5bn raised in the opening weeks of 2010 (combined accounting for over 50% of this year’s funding needs), and also cash holdings available, Ireland doesn’t have to go back to the well again for some months if the recent turbulence in the markets was to continue. "
Irish Stock Exchange says that Ireland must learn from recent corporate governance failures
The Chief Executive of the Irish Stock Exchange, Deirdre Somers has said that Ireland must learn the lessons of recent corporate governance failures in Ireland and Irish listed companies must meet evolving international market expectations if they are to attract international investment. Ms. Somers was speaking at a special Conference on Corporate Governance hosted by the Irish Stock Exchange in Dublin today. She said; “Companies must consider whether their historical practices, although accepted in the past, will meet market expectations in the future.”
Somers also said that investors had a particular responsibility in respect of publicly quoted companies. She said they must “demand better standards and require better disclosure and then differentiate and penalise those companies that do not provide them.”
Also at the Conference, the chairman of the Stock Exchange, Padraic O’Connor, said that while most Irish listed companies complied closely with the Combined Code - - a key guide for Corporate Governance issues for public companies – problems had arisen where some companies deviated from the principles of the code. He cited in particular the deviation whereby the Chairman of a company was also Chief Executive or a former Chief Executive as an example.
O’Connor also warned against devolving responsibility for corporate governance issues solely to publicly listed companies. He said; “Responsibly for Ireland’s international Corporate Governance reputation is not the sole responsibility of the 29 companies listed on the Irish Stock Exchange. The hundreds of thousands of privately owned companies and the numerous Semi State Companies are equally responsible for ensuring our national reputation for probity and good Corporate Governance – and indeed many of the damaging revelations of recent years have arisen out of those sectors rather than amongst listed companies.”
Finally O’Connor said that while the Combined Code was a key influence on Corporate Governance practices in listed companies, it was not a substitute for ethical behaviour, company law or sectoral regulation. He also called on the Government to “lead by example” by "ensuring that public sector companies adhered to the highest standards of Corporate Governance.”
Anglo Irish Bank's multi-year concealment of large directors' loans and the DCC/Fyffes insider trading scandal, are two prominent cases which have received public attention in recent years.
US markets
In New York Thursday, the Dow slipped 116 points or 1.13% to 10,126.
The S&P 500 dipped 1.18% and the Nasdaq dropped 1.91%.
Qualcomm’s shares fell 14% yesterday, after the San Diego wireless chip giant reported a weaker revenue outlook for this year than analysts expected.
Andrew Ross Sorkin, of the NY Times; Michael Elliott, of Time magazine; and CNBC's Becky Quick in Davos, Friday:
Asia
The MSCI Asia Pacific Index slumped 1.7% Friday.
The Nikkei dipped 2.08% and the Shanghai Composite declined 0.16%.
The Reserve Bank of India told banks today to set aside more deposits as reserves after raising its growth and inflation forecasts. Stocks and bonds fell.
The BSE Sensex 30 dropped 1.2%
The FT reports that Samsung Electronics has overtaken Hewlett-Packard as the world’s biggest technology company by sales, a sign of how strongly some South Korean companies have bounced back from the economic downturn.
Samsung on Friday reported 2009 sales of Won136,290bn ($117.8bn) which exceeded HP’s sales of $114.6bn for the year to October 31. It is expected to surpass its US rival again this year – its 2010 sales are forecast at $127bn, compared with $120bn from HP.
In Europe, the Dow Jones Stoxx 600 is up 0.66% Friday.
In Dublin, the ISEQ has gained 0.28%.
FB Holdings is up 3.33% and Elan has gained 0.51%.
Goodbody's Ian Hunter commented today: Elan (Sell, Closing Price $7.65); Overheating - downgrading to Sell - -"In a note issued today, we have detailed our Tysabri model revisions, which forecast a PML-led reduction in the number of new prescriptions through the first half of 2010 and the impact of at least one new oral MS drug in 2011. These pull back prescription growth and, thus, worldwide revenue, by 10% for both FY10 and FY11. On the upside, over the longer term, we believe that the introduction of oral drugs may cause a dip in prescription growth but not, as previously modelled, a longer term fall in patient numbers.
We anticipate 81,500 patients on the drug in FY15, generating revenue of $2.2bn. The caveat to this model is that PML cases, and the resultant risk perception, remain within current parameters. We have incorporated forecasts for the recently approved J&J drug Invega Sustenna and Acorda's Ampyra ($66m in total in FY11). They more than balance the projected loss of income from Tricor and Skelaxin (down $47.3m between FY09 and FY11) as both come under generic pressure and/or product switching. Our base case valuation, built up from DCF analysis of each element of the Elan business, is just north of $5.30, with our bullish estimate only hitting the $5.75 mark.
With Tysabri FY09 patient numbers in line with our expectations (slightly ahead of consensus) and EDT-related product approvals within the expected time line, the only short to mid-term catalyst we can see to the share price would be the sale of EDT. That said, the urgency for any deal has abated considerably, given the J&J deal, coupled with the subsequent refinancing of debt. If EDT were sold at a 27% premium to our base case, it would add c.43c to the value, getting us to our upper price. Conversely, leaving EDT and BAPI numbers unchanged, the current share price would imply a c.45% uptick to our Tysabri numbers. We believe, therefore, that the market may possibly have run ahead of itself in the valuation of both EDT and Tysabri and would be nervous of chasing the stock at the current price (up 17% since the start of the year). We are, therefore, reverting to a Sell recommendation with a price target of $5.75."
The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009.
On Friday, the index rose 34 points or 1.1% to 3,204 - - and closed down 2.8% in the week.
On Monday this week, the BDI rose 19 points or 0.6% to 3,223; the index fell 18 points or 0.6% to 3,205; on Wednesday, the index fell 87 points or 2.7% to 3,118; On Thursday, the BDI plunged 155 points or 4.97% to 2,963.
Irish banks face delicate balancing act on funding
Davy analyst Stephen Lyons commented today : "Despite renewed concerns over peripheral indebted EU countries and the downgrades from S&P this week, ALBK yesterday successfully issued €1.5bn of three-year funding. This issuance — the first by ALBK under the new Eligible Liabilities Guarantee (ELG) — follows recent issuances by both IPM and BKIR, and also successful sovereign issuances by the National Treasury Management Agency (NTMA).
Irish sovereign spreads over bunds have ticked up in recent days to152bps, based on 10-year benchmarks. So the cost of ALBK's issuance at 130bps over mid-swaps is a better result than we would have expected. The issuance was also well-subscribed with c.75% overseas buyers.
Banks face a delicate balancing act with respect to their funding, which will be the key driver of margin movements in the near term. The banks have experienced pricing improvements for guaranteed issuances since Q1 2009 but they are still elevated; banks also face an increased cost for issuances under the new guarantee scheme.
Therefore, the task of improving the banks' funding mix — improving the wholesale duration mix and further increases in customer deposit balances, on which banks are currently loss-making — must be balanced against the need to protect the bank's P&L.
So short-term wholesale funding will remain a significant portion of the funding mix (but hopefully more of the 364-day variety). With this in mind, data for December from the Central bank later this morning will make for interesting reading. Irish banks had been steadily weaning themselves off ECB support as of June last year. But December was the last of the ECB's one-year refinancing operation, in which it issued a further €97bn to European banks. Irish banks may have participated as they face sizeable maturation of long-term funding at the end of Q3 this year, which coincides with the end-date of the original guarantee."
Goodbody economist, Deirdre Ryan commented: Economic View; Upward pressure on Irish commercial property yields beginning to subside - - "Irish commercial property values continued to decline in the final quarter of 2009 according to IPD data released yesterday but at the slowest rate seen since Q1 2008. Overall capital values declined 4.9% qoq in Q4, a more moderate decline compared to the 9% fall in Q3 and 8% decline in Q2.
This trend was seen across all the respective sectors, with quarterly decline in capital values of 4.9% for retail properties, 4.8% for office and 5.5% for industrial. This brings the decline from the peak to 55% for overall commercial property, although there is some variance around this level on a sectoral basis (-60% for retail, -53% for office and -46% for industrial). We have incorporated a 60% peak to trough decline in property values into our banking estimates (though higher for development land) and we are still comfortable that the eventual decline will come in close to this figure given that the pace of decline is easing as highlighted above.
Commercial property rental declines are also continuing apace, with a further 6.7% fall in rental levels in Q4 according to IPD (-8.3% qoq in Q3, -6.6% qoq in Q2). On an annual basis rents were 22% lower in the final quarter, similar to the decline from the peak. In the retail sector rents are down 21% from the peak, while for the office and industrial sectors the decline has been -24% and -20% respectively. These latest trends, whereby the rate of capital value decline has slowed relative to the rate of decline in rents, has seen upward pressure on yields ease somewhat. In Q4 the yield on overall commercial property moved out to 8.3% (highest since 1996) although this was only a touch above the 8.2% yield reported in Q3. These initial signs of yield stabilisation will likely emerge further in the quarters ahead should the decline in capital values continue to ease, as we expect to be the case. "
