Markets live chat transcript for the chat ending at 12:14 on 23 Oct 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM:
Welcome to Markets Live
PM:
This is FT Alphaville’s daily market chat
PM:
back to our usual habit of being late
PM:
Choppy markets live today
PM:
I know some people were watching the Dow last night – and obviously thinking they were going to see another blood bath in London this morning.
PM:
That hasn’t happened.
PM:
Not a bath – just a quick wash down with the red stuff.
NH:
sorry not sure why I am in quotes this morning
PM:
Not to say there is some lasting damage amongst individual stocks.
PM:
Look at this, which we can come back to in a mo.
Wolseley (WOS:LSE): Last: 280.00, down 24.75 (-8.12%), High: 318.75, Low: 250.00, Volume: 7.93m
PM:
Oh, its bounced a bit
NH:
So Wolseley is a wos-stock
PM:
(Mervyn — Greenlight capital — david Einhorn)
PM:
But before we look at that, couple of important URLs to share with everyone this morning.
PM:
First there is this one – passed on by Andy Slade, FT.com news editor
PM:
Now while its called Spank the Banker, you don’t actually him – in a Pestonian sense.
PM:
Rather you give him a good thump.
NH:
And then when you’ve finished that one, you can have a look at this – one that Tracy’s dug up in Tokyo.
NH:
This could well take up the rest of your day
NH:
basically you “buy” when you think the chart is going to rise – and then book your profits
NH:
And to the right you will be able to see how your 10k has performed.
PM:
Tracy got a return of 61%. She claims
PM:
Mine went down by 22 per cent for some reason.
NH:
Do you think we are actually a drag on productivity.
PM:
What, you think people sit at their terminals all day, putting sarky comments up on alphaville while they play smack the banker or Wall Street Pong – not doing any work.
PM:
For those who missed pong:
PM:
That should take poeple thru to the weekend
PM:
Lemmy –Sam says that’s a great chart — so ta
PM:
Fotosie currently down 59 at 3981
NH:
but it has been all over the place
NH:
was off 100 points 30 mins ago after we got some CDS reading out of Russian the Ukraine
NH:
5yrs CDS on Russia went out to 1,050bps
NH:
and someone just sent a Bloomie on chart on Glencore
NH:
obviously this company is a massive geared play on EM
NH:
and its CDS is what, Paul
PM:
Looks to be headed towards 900
PM:
is taht right — the print is small
NH:
So far this morning, FTSE 100 been as high as 4,083 and low as 3,932
NH:
Dow Jones off 5.6 per cent last night, but important to note that it had a substantial bounce off its lows in the last 20 mins of trading.
NH:
That’s why there was a lot of confusion over where the Footsie might open today.
NH:
Miners taking ANOTHER harsh beating.
Antofagasta (ANTO:LSE): Last: 257.75, down 30.75 (-10.66%), High: 291.75, Low: 253.00, Volume: 2.50m
RIO TINTO (RIO:LSE): Last: 2,161, down 228 (-9.54%), High: 2,320, Low: 2,147, Volume: 2.51m
Fresnillo Plc (FRES:LSE): Last: 124.00, down 12.6 (-9.22%), High: 139.00, Low: 120.00, Volume: 167.93k
NH:
that will be kicked out of the FTSE 100 at the next review along with Ferrexpo
NH:
real dot.com stuff this - three months in the FTSE 100 and out
NH:
market cap of Fres now under £1bn
PM:
Neil has gone off to find the float price for Fresnillo
PM:
Do you remember when everyone used to be long miners and short financials – and the trade was supposed to get reversed.
PM:
Well it looks like people only did half the reversal – sold the miners and neglected to buy the financials.
Kazakhmys (KAZ:LSE): Last: 236.50, down 21.25 (-8.24%), High: 259.00, Low: 233.00, Volume: 2.03m
NH:
Fres listed at 555p in May/June
PM:
77 per cent of your money gone
NH:
right, we will have a quick chat about the miners and then on to aviva
NH:
as there is lots of interest
NH:
brokers are telling the miners are tracking the CDS prices on emerging markets debt
NH:
so is Standard Chartered
NH:
: which has taken a fearful beating over the past couple days
NH:
hang on flash from FSA
NH:
FSA has decided to implement a general disclosure regime for long CfD positions as the most effective way of addressing concerns in relation to voting rights and corporate influence
NH:
Existing share and CfD holdings, in the same company, should be aggregated for disclosure purposes. The initial disclosure threshold will be at 3%, in line with the existing disclosure rules. The FSA is proposing an exemption for CfD writers which act as intermediaries, similar to the Takeover Panel’s Recognised Intermediary exemption, to reduce unnecessary disclosures.
NH:
Alexander Justham, FSA director of markets, said:
“Our goal is to provide an effective and proportionate disclosure regime that works for all involved, and sustains market confidence and efficiency. We have received extensive support for the approach we are taking, since we announced it in July. We would like to thank all those who provided feedback.”
PM:
Some clarity on this has been needed for some time
NH:
anyway back to the miners
PM:
What’s the situation with Rio???
NH:
well they are off 203p at £21.86
NH:
this is of course follows reports that the EU was going to block the bid from BHP
PM:
so in the space of 24 hours we have gone from BHP getting approval
PM:
to the deal being off
NH:
this speculation all stems from the fact that the EU will shortly issued its statement of objections
NH:
now that may seem scary but it is not
NH:
the SO will describe in detail the EC’s concerns about the deal and will provide BHP with insight in the evidence the EC, customers and other third parties have compiled in objecting to the deal.
NH:
this will give BHP an idea of what assets it needs to sell to get the deal through
NH:
overall then,the SO and BHP’s response are ordinary parts of a long process that will bring us into a final decision near year end or early 2009.
PM:
I thought we would get a decision in January
NH:
I think we will, but there is a chance it could earlier
NH:
another interesting development in the mining sector today are reports that China is pushing for a major change in iron price negotiations
NH:
The China Iron & Steel Association says it is considering a major change in the annual iron ore negotiations mechanism next year to unify the prices of imports from all countries, according to Dow Jones. “There are spot and contract prices, Asia and Europe prices…We need one price for all imported ores,” Secretary-General Shan Shanghua is quoted as saying to reporters on the sidelines of the two-day China International Steel & Raw Materials Conference today.
RAW is market chatter - information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
PM:
Hmmm. so what’s the impact likely to be?
NH:
here’s what Liberum Capital made of it
NH:
Bloomberg reports that the Chairman of the influential China Iron and Steel Association, CISA has said that the Chinese wanted to scrap the annual price negotiation for iron ore with a move to possibly quarterly settlements. Moreover they now wanted a single price to prevail (i.e abolishing the differences between spot & contract imported ores and domestic ores). This change of stance is one which should please BHP Billiton who have been keen on a move to more spot based pricing, but comes at a time when for the first time in years the spot price of iron ore is below the contract price (spot in China has fallen over 50% to c.$74/FOB equivalent vs contract at $89/t).
NH:
The move looks to be more than just opportunism for the Chinese – most steelmakers in China are now loss making having locked in one year raw materials contracts at high prices when steel prices have now collapsed (HRC is down from over $1000/t to c.$600/t). It may not feel like a positive development because pricing is likely to fall from April, but we regard this as a good development for the sector.
NH:
right, lots of questions about Aviva
NH:
what has taking a pasting over recent days
NH:
stock off a further 4% this morning
NH:
come back from 565p in mid Sept to
PM:
More than halved in little more than a month!?!
NH:
was talking to Andrea Flested our insurance correspondent about this yesterday
NH:
and there is real fears about its commerical mortgage portfolio
NH:
and I am just finding th detail on that
NH:
has a portfolio of about £11bn of commercial mortgages backing annuity contracts, which promise to pay an individual an income for life.
NH:
now through this portfolio Aviva got caught up in the whole Dawnay Day debacle
NH:
here’s what Andrea wrote at the time on that
NH:
Investors to grill Aviva over Dawnay Day loans
By Andrea Felsted
Published: July 27 2008 23:06 | Last updated: July 27 2008 23:06
Aviva, the UK’s biggest insurer, will face questions next week about £750m of loans made to Dawnay Day, the property and financial services group.
Aviva is to report interim results on Wednesday, and some investors and analysts have questioned why the insurer was involved in lending to Dawnay Day, parts of whose labyrinthine empire are in receivership.
EDITOR’S CHOICE
Aviva to pay £1bn in life fund ‘milestone’ - Jul-30
Lex: Buoyant Aviva - Jul-30
Aviva plans £1bn Norwich Union payout - Jul-30
Aviva to free up £5bn life funds surplus - Jul-29
Aviva chief set to mark a tough first year in charge - Jun-17
Unions hit at Aviva plan to cut 6% of workforce - Jun-06
Norwich Union, an Aviva subsidiary, is Dawnay Day’s biggest creditor and appointed BDO Stoy Hayward as administrators to recover £750m in loans from companies in the group’s stable.
NH:
The loans to Dawnay Day were made by Norwich Union’s commercial finance arm, which has a portfolio of about £11bn of commercial mortgages backing annuity contracts, which promise to pay an individual an income for life.
James Pearce, an analyst at JPMorgan Cazenove, broker to Aviva, has estimated the group could see an eventual loss of “tens rather than hundreds of millions” from the Dawnay Day mortgages.
People close to Aviva have also sought to provide reassurance, saying the group has charges over the properties the loans are secured against, the value of the properties would more than cover the loans, and there was interest in them from potential buyers.
As at December 31, Aviva had £36.2bn of loans on its books, of which £27.3bn were assets of shareholders. Participating funds, where the risks and rewards rest primarily with policyholders, own £8.6bn, while £347m are policyholders’ assets.
NH:
more recently they have been concerns that Aviva would not be able to pay out more than £1bn for Aviva policyholders because of the sharp falls in teh market
NH:
Under the terms of the deal, Aviva has the right to reconsider the pay-out if the FTSE 100 index fell below 5,000. It closed yesterday at 4,063.
NH:
anyway, that’s the recent background
NH:
here’s some broker comment
NH:
previewing the Q3 statement due on Oct 28
PM:
Before you put that up Neil —
(Dr Dan — do please email us either at paul.murphy@ft.com - or if you want to stay away from FT servers, we now have this address as well
ftlongroom@gmail
Cheers)
PM:
Okay — show us the research
PM:
(Just a reminder — please dont try and watch this ML session in the V2 version — they are not properly synched
NH:
actually Bryce just sent me a good note on the insurers from HSBC. hot off the presses
NH:
The world has changed; the banking
crisis is affecting the real economy –
growth is slowing, corporate bond
defaults will rise and asset markets will
remain volatile.
NH:
Insurers will find it difficult to perform in
this environment – investors that ‘must’
own insurance should consider
Admiral, Alleanza, AXA, L&G and ZFS
(all rated Overweight (V)).
NH:
We downgrade AEGON, Mediolanum
and Standard Life to Underweight (V).
We also downgrade Aviva, Banca
Generali, Fondiaria-Sai and Prudential
to Neutral (V).
NH:
Fundamentals: Although the sector remains adequately
capitalised, capital buffers have been eroded in the three
months since our last report and the prospect of insurance
rights’ issues can no longer be ignored
NH:
In our bear case, we
estimate the sector requires EUR10bn for capital levels to
remain consistent with an A rating and EUR21bn to raise
capital levels to an AA rating. While we are not overly
concerned about liquidity or asset-liability management at
the sector level, we are increasingly nervous about the
potential impact of lower and more volatile equity markets,
rising corporate bond defaults, DAC unlocking and
spiralling hedging costs on thinner capital buffers. The
conversion of already accumulated significant unrealised
ABS losses presents a further challenge to solvency.
NH:
Valuation: Insurers offer deep value on most conventional
metrics – P/EV, PE and dividend yields – in absolute and
historic terms. But, valuation has ceased to be a share price
catalyst for some time. We have reduced most of our price
targets in this note and all stocks are now classified as volatile.
NH:
Catalysts: We struggle to see positive catalysts in the
coming months, other than a sustained equity market rally.
As the financial crisis morphs into a broader economic crisis,
fears about insurers’ sales prospects, earnings and solvency
are unlikely to disappear and overly optimistic consensus
estimates will fall.
NH:
and here’s some stuff on aviva, which they have downgraded to neutral
NH:
Aviva (Neutral (V), target 412p)
We downgrade Aviva from Overweight to Neutral
(V) and cut our price target to 412p. We
downgrade for the following reasons:
This entry was posted by Paul Murphy on Thursday, October 23rd, 2008 at 11:03 and is filed under Uncategorised.
