Bournemouth, Dorset -- The FTSE 100 trod a rather uncertain path today, wavering either side of no change in early trading. It started to fall slightly in the early afternoon, after falling profits from HSBC dragged down interest in the banks, but perked up when the Dow Jones got out of bed in a more sprightly fashion and started moving on up. This was enough for the Footsie to close the day modestly in the black.
The latest estimate for UK economic growth comes from accountants Pricewaterhouse Coopers, who have gone for a middle-of-the-road nought for most of the year. They do not see the long recession that others have forecast and actually see signs of growth towards the end of the year. A new Confederation of British Industry (CBI) survey also shows that pay settlements are showing signs of falling.
Today was a good day for PowderJect Pharmaceuticals (PJP) after the details of the company's new placing emerged. On February 11th, PowderJect announced that it plans to raise around £52 million from the issue of new shares, and today the details were confirmed. There will be a new issue of 8 million shares to be placed at 670p each on a one-for-eight basis. Dealing in the new shares will commence on 18th March. This was a shot in the arm for the share price, which ended up 27.5p at 932.5p.
According to a report in the Sunday Business, Qualiport constituent Unilever (ULVR) are about to unveil plans to buy back shares to the value of £1.5-£2 billion. With analysts and investors looking to tomorrow's full-year results, this was enough to push the price up 42p to 625.5p.
The recent collapse of the "open skies" talks between the UK and the USA on the liberalisation of trans-Atlantic air traffic was bad news for travelers, but looks to have been good news for British Airways (BAY). In the absence of such a policy, which should bring greater competition and lower air fares, the big carriers that today have the bulk of the protected routes will be the biggest winners. BA's share price took off, gaining 15.5p to a cruising altitude of 457.5p.
Good news for British Aerospace (BA.) came in the form of a report from Dassault Aviation of France. In an interview with Le Figaro, Dassault chief executive Serge Dassault said that the company is considering splitting its civil and military activities and plans to embark on cooperation with other companies. BAe would clearly be a front runner for any joint venture in military business, and the share price reflected this, shooting up 19p to 421p.
Shares in Rank Group (RNK) rose 12.25p to 235p on rumours of a bid attempt. The bid, reported by the Sunday Times and expected to be backed by venture capital firms, apparently values Rank at around £3 billion. On Friday director A. W. P. Stenham bought 19,910 shares at 227p per share, giving him a total holding of 40,800 shares -- fortuitous timing indeed.
More bid speculation pushed up the share price of Weir Group (WEIR) today. There appears to be mounting speculation that a bid of around 330p per share may arise. Weir recently rejected a bid of 300p from Flowserve, so any new offer would need to be significantly higher than that. A Weir Group spokesman declined to comment. The price ended the day up 10.5p at 265p.
Another Qualiport company, EMAP (EMA), did well today, gaining 55p to 1315p on no news.
HSBC Holdings (HSBA) took a sharp tumble today after the publication of full year results. For the year ending December 1998, the company's pre tax profit was $6,571 million, down from $8,130 million the year before. Operating profit was higher than last year at $9,051 million -- up from $8,553 million -- but provisions for bad debts rose from $1,014 million to $2,637 million. Earnings per share (EPS) fell 22% to $1.60, but the total dividend for the year rose 11% to $0.925. The company achieved a return on average shareholders' funds of 15.5%. HSBC's British subsidiary Midland Bank contributed a pre tax profit of £1,522 million, a small fall from last year's £1,544 million. Again, this came after an increase in provisions for bad debts, up to £196 million from last year's £124 million.
HSBC announced plans to acquire 70% of the Korean state-owned and struggling Seoul Bank for £425 million. The company has also announced it is to merge its two classes of shares into a new class, denominated in US dollars, and will seek to list these shares on the New York Stock Exchange. The shares ended the day down 67p to 1609p.
As fears of a new supermarket price war begin to emerge, analysts are starting to get a little bearish about the food retailing sector. On Friday, Tesco (TSCO) announced price cuts on 240 key items, and today their share price fell 2.5p to 173p.
Analysts are expecting full-year results from Prudential Corporation (PRU) to be distorted by exceptional items and predict a dividend of around 21p, up a little from last year's 19.2p. This wasn't seen as good news, and shares in the Pru fell 16.5p to 879.5p.
After broker Merrill Lynch downgraded its assessment of Compass Group (CPG) from "accumulate" to "neutral," the shares lost 19p to 696.5p. Better stop accumulating them then, Fools.
Believers in the Perfect Markets Theory, often touted in academic economics circles, were dealt a severe blow recently by a report published in Nature. The august researchers, no doubt after the expenditure of much labour and cash, came to the conclusion that the major driving forces of short-term market movements were speculation, gambling, greed, fear and the "bandwagon" effect of investing bubbles. So, short-term market movements are not directed by rational analysis of all available information after all. The researchers should have spared their effort -- any Fool could have told them that for nothing.
For those unfamiliar with it, what is the Perfect Markets Theory? Well, it's quite a simple theory, really. It just suggests that all relevant information that is freely available to investors will feed into share prices very quickly and that no share will ever be underpriced or overpriced for any significant length of time because of this. Thus it is impossible for any of us to be ahead of the crowds, as everyone else will have exactly the same information as us and everyone will act on it in the same way at the same time. To be fair to economists, the theory is really just a hypothetical ideal world model, and nobody seriously believes that the real world actually works this way. Or do they? I have personally heard many people suggesting that they can never get ahead of "the big boys" because they just can't get the information fast enough -- and these are often educated and intelligent people. But the truth, often ignored by theorists, really is out there. Fools do consistently beat those "big boys."
So, what obvious evidence is there that markets are not perfect, then? Well, for one thing, the theory assumes that everyone will act rationally at all times and will arrive at decisions based on nothing other than logic. Does that sound at all likely? Not to this Fool -- the South Sea bubble, Dutch tulip bubble (and, dare I say it, Internet bubble) mentality hasn't gone away and never will. Irrational reasons for buying and selling shares? How about "because it looks like the start of a new bubble," or "because there's sure to be a takeover bid soon" or "because they can't fall any further than that" -- all reasons I have heard. And even assuming that everyone bases their investment decisions on rational analysis, people will come to different conclusions about individual shares based on different levels of education and experience, knowledge of different sectors, degrees of risk aversion, affluence and a myriad of other factors. And there are many perfectly rational reasons for selling shares that have got nothing to do with valuation -- to pay for a holiday, an offspring's wedding or whatever (I recently sold some shares to pay a tax bill, myself). And let's not mention chartists.
So, markets are not perfect, but does this matter to a Fool? As Foolishness spreads, markets will inevitably become more perfect over the short term (and in the long term, markets are much closer to perfection anyway, with long-term stock market movements genuinely reflecting real underlying value). Long term stock market gains represent the world's real long-term economic growth -- the creation of new wealth -- which is something that we can all share in, and it is this growth that is the underpinning of Foolishness. But if, in the short term, markets are far from perfect, how does it affect Fools? If we know that share prices may fall in the short-term for irrational emotional reasons, should we not be afraid of losing our money? No, of course not, because we know that if we choose the right companies, genuine value will always win through in the end. And in the meantime, Fools should look at market imperfection as a bonus and short-term irrational falls as buying opportunities -- chances to pick up bargains that irrational speculators do not want.
Bad news for speculators in new issues came over the weekend with the cancellation of the planned William Hill flotation. The company has instead been sold to two venture capital groups. Flotations have become, in recent years, a very popular method of entry into the stock market for many people, who feel reassured by the numerous profitable government privatisations of the last decade or so. A lot of people buy in simply because they believe that flotations always become profitable for investors, but is this necessarily so? It ain't. Why would a private company float itself at a bargain price? Don't forget, the same fundamental analysis is needed when buying into a flotation as when buying any other share. We do want those markets to become perfect, after all, don't we? Or do we? Come and tell us what you think over on the message boards.
