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Investment view

With the US first quarter reporting season now largely complete and

UK companies with a March year-end also dishing out results, we are

beginning to build a picture of corporate health on both sides of the

Atlantic. By and large it does not look too bad. Where there are

surprises, they are tending to be on the upside. At least it shows

that over-capacity is being squeezed out of the system and pricing

power starting to return.

That said, the market is struggling to breach the 4,000 level, while

even the American indices appear to have stalled. For once it is

looking as though the micro picture is adding up to more than the

macro. Company earnings have been bolstered by the cost cutting that

was forced upon them during the US slowdown. Unfortunately the big

picture still looks uncertain and investors are still lacking in


In the UK the most recent CBI survey was notably downbeat. To be

fair, it was conducted between March 20 and April 9 – just about the

time that the battle in Iraq was in full swing. However, those

contributing to the survey should have been able to take into account

the weakening state of sterling which should be beneficial for

exporters. It could, though, make further interest rate cuts that

much more difficult, given the upward pressure it places upon


In Germany, the IFO survey for April was worse than predicted. The

strength of the Euro will be taking its toll and the bigger economies

in Continental Europe are undoubtedly behaving in a sluggish fashion.

No wonder European business is holding its breath over global

economic recovery.

Holding one&#39s breath seems an appropriate expression given the

apparent impact of Sars. This is just one of the imponderables for

economists trying to come up with a likely outcome for world economic

growth. With Europe in the doldrums and the US economy still looking

far from robust, it is to the Far East that we have been looking for

leadership. Indeed, China delivered spectacular growth for the first

quarter of 2003. Sars could bring this to a premature halt.

Tourism in the region has been decimated – Cathay Pacific planes are

sitting on the tarmac, grounded – and schools and places of

entertainment in parts of China have been closed. The initial

approach there of trying to bury the news has simply not worked and

has cost at least one senior Government official his job. We have to

hope that these current measures will prove effective.

Back at home, poor share price performance and some spectacular

corporate calamities have brought back into focus the reward

structure for those who lead Britain&#39s biggest companies. With many

AGMs taking place, shareholders have the opportunity to voice their

concern over how much those who are perceived to have performed

poorly have been paid. At Shell, Barclays and, of course, Corus,

shareholder power was much in evidence. Yet it was the private

investor minority making most of the noise. Big institution investors

still seem remarkably reluctant to rattle the cages of Britain&#39s


But to return to the more encouraging news emerging from companies,

will it be sufficient to encourage investors back into the market?

The bounce in the FTSE 100 since the low point reached during the

early part of March has been not far short of 20 per cent, but there

are plenty who still consider it to be the last twitches of a dead

cat. Only time will tell, of course, but I for one am beginning to

feel more hopeful.


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