March 15, 2013 2:58 pm

Letter from Lex – billions and billions

Think you’ve got a tough job? Well at least you don’t have responsibility for over a billion people like China’s new president and prime minister, and the new Pope. Mexico’s president leads a mere 115m, but his sights are set on three of the richest as he introduced meaty reform proposals for the telecoms and TV industries. Italy’s leaders have even fewer people to care for, but if they cannot resolve the political gridlock, the country may be in for further downgrades (not a good thing when you have $2tn of debt outstanding).

Italy’s companies may be in for another lost year, but their US counterparts are doing considerably better. US companies have been enjoying record profitability but are using the proceeds to fund dividends and share buybacks rather than fixed investment.

Elsewhere it was about phones, cars and planes. BlackBerry’s Z10 finally launched in the US after encouraging signs in other markets, but it was overshadowed by Samsung’s latest answer to the iPhone – the Galaxy S4. China Mobile, with 710m subscribers and $60bn of cash, also knows a thing or two about smartphones, but investors in the 70 per cent state-owned venture may see very little of that money. In the automotive sector, US car sales are projected to reach 15.4m in 2013 after bottoming out at 10.4m in 2009, but GM and Ford’s share prices are not yet benefiting from renewed consumer confidence. Volkswagen is suffering from the malaise in Europe, but it is still better-placed than most of its continental competitors. Up in the sky, Boeing is well positioned despite its much-publicised Dreamliner battery problems while Cathay Pacific looks like one of the better bets in the turbulent airline industry.

And finally, banks and insurers. In the second part of the US bank stress tests there were 14 passes, 2 fails and 2 incompletes – the latter being JPMorgan and Goldman Sachs due to weakness in their capital planning processes. In the UK, legislators picked an ill-advised fight with the government over leverage ratios, a far from perfect measure of banking safety. In Japan, banks seem to have faith in the prime minister’s Abenomics as evidenced by Sumitomo Mitsui’s Y200bn buyback of a state-owned stake. In the insurance sector, Warren Buffett’s investment in Munich Re is ticking along steadily while UK life insurer Prudential is prospering in Asia. Italy’s Generali is not in such good shape, but it got most of the bad news out of the way in its latest results and may finally be able to emerge as a neater investment prospect.

John Casey, Lex Publisher

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