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Last Updated: Tuesday, 4 March 2008, 08:58 GMT
Global investors turn to commodities
Jamie Robertson
By Jamie Robertson
Business presenter, BBC World

Sentiment seems to change by the month in these volatile times, and nowhere more so than in the commodity markets.

gLOBAL 30 in February

The cost of commodities touches almost everyone on the planet.

Even with a fair number of economists now pencilling in a US recession this year, copper, zinc, aluminium tin, wheat and, of course, oil seem set on an upward trajectory.

Some companies can profit by this.

Nestle, the Swiss food giant, managed to raise profits over 14% last year, even while cocoa prices rose 39% and Robusta coffee went up by two-thirds.

If people continue to want to pay more for chocolate Nestle should be set for another good year.

Commodity boom

Can the same be said for steel and oil? Possibly.

The big miners, BHP Billiton (up 15.3%) and Anglo American (up 21.4%) both regained some of the strength they lost in January.

CNOOC logo
CNOOC: 22.54%
Anglo American: 21.35%
BHP Billiton: 15.30%
Nestle: 9.47%
Toyota: 7.37%

Then the market was fretting about global slowdowns.

Now they believe China's growth (and India's and Russia's and Brazil's) will see the world through the bad times.

The chairman of Rio Tinto, Paul Skinner declared last month that the "decoupling" of much of the global economy from the US was working and demand in China would survive the US slowdown.

Chinese inflation has hit all time highs.

It may be largely linked to food prices (meat and poultry prices were up 42% over the last twelve months).

However, Claire Innes, Asian economist at Global Insight, points out that steel prices for Chinese companies are expected to rise by around 65% in 2008 "while global oil and other commodity input prices will also remain elevated".

CNOOC, the Chinese oil production group, was the biggest gainer on the Global 30, up 22.5%.

US weakness

But there's no getting away from the despondency over the US economy.

Windows Vista
Microsoft Corp: -15.50%
Citigroup: -14.96%
Electricite de France: -8.81%
Vodafone Group: -8.03%
AT&T: -6.78%

The US component of the Global 30 dropped some 2.7%, and the Dow fell some 3.5% in February.

So one would have imagined it was not a good time to announce a flotation.

Indeed, globally, some $21bn worth of new issues have been cancelled this year.

Nothing daunted Visa, the world's biggest credit card network, which said it was going to offer the market $18.8bn worth of shares - Wall Street's biggest ever IPO.

Now a cynic might say that the banks that own the network are fed up with having to go cap in hand to Asian sovereign wealth funds to repair their balance sheets after the sub-prime crisis, and would prefer to recapitalise closer to home.

There may be some truth in that, although it should be remembered that the biggest Visa shareholder, JPMorgan Chase, is in fact one of the strongest of the US banks.

Certainly many of the world's biggest banks did come out with reassuring comments that they had now accounted for all their sub-prime losses.

However, their share prices have failed to make any real return to strength. HSBC gained a feeble 1.5%. Citigroup fell 15%. Mitsubishi UFJ was down 5.2%.

Flood of lawsuits?

UBS is now facing a possible law suit from a German bank, HSH Nordbank, for mismanagement of its investments and there was much speculation in February that this was the beginning of a flood of legal cases against the banks over their sub-prime investments.

Roger Kirby from the law firm Kirby Mclnerney explained how banks were shedding old inhibitions.

He said "HSH's action, if it happens, is important, but in fact the far more significant law suit is the one by Barclays against Bear Sterns a few weeks ago, as it showed that one institution was prepared to proceed against another, which historically they have not been prepared to do."

The biggest faller on the Global 30 had nothing to do with credit crunches or sub-prime markets .

Humbling of Microsoft

Microsoft's fall of 15.5% was all to do with its bid at the beginning of the month for Yahoo and its $1.4bn fine from the European Commission for failing to obey its 2007 ruling on its anti-competitive practices.

Windows Vista
Microsoft Corp: -15.50%
Citigroup: -14.96%
Electricite de France: -8.81%
Vodafone Group: -8.03%
AT&T: -6.78%
The market is distinctly wary that it is setting its sights on Yahoo for all the wrong reasons, that is to deny Google advertising market share.

The bid had such an effect on Microsoft's share price that the value of its offer, much of it in shares, slipped from $44bn to $41bn.

As for the fine, while it makes little impact on Microsoft's massive wealth it has a more long term significance.

John Pheasant of lawyers Hogan & Hartson said:

"What the Commission has sought to do here is create a framework. It's got very clearly established legal principles and now it's seeking to push down the enforcement responsibility to national courts.

"It wants to get companies to exercise their rights by not necessarily going to the Commission, which is under-staffed and under-resourced, but to say: 'the national courts are out there, the principles are clear, go on, get on with it and exercise your rights.'"

BBC Global 30 intraday chart


FTSE 100
22.84 0.42%
18.55 0.32%
Cac 40
14.37 0.38%
Dow Jones
78.53 0.76%
35.31 1.58%
Data delayed by at least 15 minutes

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