January 11, 2013 2:31 pm

Letter from Lex - going underground

As London marked the 150th anniversary of the world’s first underground railway, the builders of 21st century infrastructure had problems on their hands in China. Zoomlion, the country’s number two construction equipment maker, suffered an attack in the form of an anonymous letter alleging accounting fraud. The construction sector is struggling as Beijing shifts away from wasteful infrastructure development towards consumption. However, investors remain upbeat helped by strong economic data including a boost in manufacturing and export growth in December. The Shanghai Stock Exchange might have thought it was contributing to the cheery mood by encouraging listed companies to pay out 30 per cent of income in dividends, but the policy is misguided.

Elsewhere it was about new faces and modern gadgets. Miner Anglo American appointed a new chief executive while the chairman and majority shareholder of US retailer Sears, Eddie Lampert, also took on the CEO role. In the tech sphere, ailing Finnish handset maker Nokia announced progress of a sort as it rushed out good news on fourth quarter sales while Taiwanese mobile phone company HTC recorded its lowest quarterly net income since 2004. Perennially lossmaking Japanese electronics manufacturers were hoping for better luck this year as they gambled on new devices at the Consumer Electronics Show in Las Vegas.

Much of the remaining action was in the UK and France. British retailers Marks and Spencer and William Morrison reported poor Christmas sales, but investors should be wary of placing too much emphasis on these like-for-like sales numbers as they have little predictive power for shares. In France, Peugeot also announced a fall in sales while Air France-KLM appears wisely to have decided not to raise its stake in Alitalia, but both companies still have long journeys ahead.

Finally, in financial services, bankers continued to atone for their sins with the head of UBS’ investment bank admitting to UK politicians that his fellow bankers had been arrogant and stuck in their ways. Remarkably very few relationship bankers seem to have paid the price for these transgressions. Perhaps they think the recent rally in European bank shares has further to go yet. Insurers are feeling relatively smug as they slowly reshape their companies. Generali paid a Czech businessman €2.5bn for his 49 per cent stake in their joint venture while Aviva disposed of its remaining equity stake in Delta Lloyd.

John Casey, Lex Publisher

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