Financial Times Newsmine
June 30-July 6, 2012
"The question for investors is whether Barclays can close this and other gaps. Its 2011 return on equity was 5.8 per cent, well below the 8 per cent from BNP Paribas and Deutsche Bank and the 11 per cent from JPMorgan. If Barclays is to justify a higher valuation, it will have to improve its returns. This year started well, thanks partly to lower provisions in its well-regarded UK retail business. But the heavy lifting will have to come from the investment bank, which accounts for just over half of Barclays’ pre-tax profit."
"While headline valuations look OK, it is difficult to see where another sustained bull run is going to come from. For those who believe that market price/earnings ratios have predictive power (many studies suggest the opposite), Mexico’s forward p/e is rich, but not ridiculous, at about 15 times. But this multiple is being damped by telecommunications giant América Móvil, which accounts for about a quarter of the index. Four of the other companies in the top 10 have forward p/e ratios in the 20s or 30s. One, Cemex, is forecast to make losses this year."
"So what’s going on? One problem is that Chinese corporate profits are falling. State-owned enterprises reported a 10 per cent decline in profits in the first five months, according to Andy Xie, an independent economist. But perhaps the bigger problem is that retail investors appear to have lost almost all faith in domestic Chinese stocks, known as A shares. Ever since a huge stock bubble burst in 2007, Chinese investors have shunned equities and instead flocked to the perceived safety of property, gold and fixed income products."
"The weak ISM data came after purchasing managers surveys showed China’s industrial sector expanded at its slowest pace in seven months, while eurozone manufacturing also remained stuck at its weakest level in three years. 'A significant part of the weakness looks to be trade contagion,' said Alan Ruskin of Deutsche Bank. Eurozone manufacturing activity has contracted each month since August 2011. In Germany, the eurozone’s largest economy, the index for June showed manufacturing activity shrinking at its fastest pace since June 2009."