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Investment View: Buying power

While not wishing to gain a reputation as a killjoy, it strikes me as dangerous that the stockmarket greets every new takeover bid with euphoria. I admit last week was somewhat exceptional.

Takeover approaches came in thick and fast as the week began. O2, P&O, Pilkington and Mowlem are well-known businesses and there was plenty of activity moving further down the list in terms of market capitalisation. Even Aston Villa was in play last week.

Perhaps the most interesting aspect is the extent to which these bids are originating from overseas. The Spanish announced intentions to take control of O2. Middle Eastern interests are pursuing P&O. The Japanese have Pilkington in their sights. This is arguably a trend that could develop further.

Not all the good news was of a speculative nature, however. Economic statistics for the US and China came in ahead of expectations. The growth in Chinese GDP was 11.3 per cent quarter on quarter – a stunning performance.

Another good news story was the better than expected profits from UBS. I am not normally given to remarking on individual companies but there are lessons to be gained from these figures. The two drivers of the business are now investment banking and wealth management. In the case of investment banking, it is clear that all this M&A activity is delivering strong profits growth to those who have positioned themselves well.

Wealth management, on the other hand, is not an area where banks automatically prosper. The attractions are clear. Earnings tend to be less volatile and the move to fee-based remuneration is making revenue generally less sensitive to market conditions. What is clear from the UBS results is that, if you get the mix right, the benefits of scale will travel through to the bottom line.

We were not short of other areas of interest last week. The expected quarter-point rise from the Fed brought the rate up to 4 per cent. With economic performance beginning to pick up in continental Europe, can it be long before interest rates start to rise there also?

This was the 12th consecutive quarter-point increase. US consumer spending has been driven by the cheap cost of borrowing. The added cost of money, coupled with dearer fuel, could impact on spending habits. With $11trn of debt in the hands of the US public, any further rises need to be watched carefully.

I enjoyed the news that a previously unknown company, King Win Laurel, had notified the US Securities & Exchange Commission that it intended to bid for Exxon, the world’s biggest oil company. At $35 a share, this bid would value Exxon at $450bn. The offer was, it added, subject to financing – and it turns out that the bidding company is based in an apartment on the outskirts of Beijing. An Exxon spokesman dismissed the offer with the comment that: “We do not believe King Win Laurel is financially capable of making such a tender offer.” Still, it helps quicken the pulse a little.


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