News
In early January the policy forum looked forward to 2011 and cautiously forecast a positive year ahead which looked prescient up until the Eurozone crisis took on new form over the summer.
So it was with some trepidation that delegates at yesterday's policy forum heard senior financial figures forecast that 2012 promises to see a continuation of the difficult financial environment we are contending with - although not without some causes for optimism. We were delighted to once again secure an excellent array of expert speakers from different areas of the world of finance, once again ably organised and moderated by Clare Williams of Clare Williams Associates Ltd.
Starting things off was Oliver Ralph, UK companies editor at the FT who focussed on two core themes - the chaos in the Eurozone and corporate conflict. Regarding the latter, Ralph considered the various company vs shareholder, company vs company and company vs government disputes that have occurred in the last twelve months over matters ranging from activist shareholders to wranglings with national governments over nationalisation.
2011 saw a marked reluctance amongst companies and investors for large transformative M&A with bolt-ons preferred, as well as a low number of successful IPOs - both developments Ralph expects to continue in 2012. Wholesale funding which became a major problem for banks and other companies during 2007-8 is likely to become an issue again depending on ramifications in the Eurozone. One interesting point for western companies to consider is that developing markets will see increased domestic company growth - for example China has a number of mobile telecommunications firms making inroads in that market and beyond.
We then heard from Nick McLeod-Clarke of Blackrock who presented a more bullish case and raised a number of revealing points such as that China and the US have roughly equal numbers of middle classes (those with $10,000 disposable income). On an optimistic note he produced a graph showing a strong correlation between low P/Es and subsequent out performance. At present, valuations offer the prospect of strong real returns from equities.
He offered useful insights to IR Society members on what fund managers want from IR - including to be truthful and consistent, to release bad news as early as possible, ensure management are up to speed on numbers and not to become fixated with share price! He also discussed how acceptable debt levels from 5 times pre-credit crunch to around 2 now Gillian Sheldon from Credit Suisse then considered the volatility in global markets in 2011 and the outperformance of defensive stocks against cyclicals. She highlighted the strong move out of equities in the latter half of the year along with the Eurozone crisis driving up bond yields in peripheral Europe. Sheldon also discussed the come-back of share buy-backs in 2011 (15 FTSE 100 companies have initiated buy-backs). Like McLeod-Clarke she looked for silver linings in 2012 essentially relying on some form of fiscal union in Europe leading to a stabilisation in the crisis, greater certainty and recapitalised banks, slower and more predictable growth and increased access to capital. In relation to IR Sheldon considered the focus of markets will be on the resilience of revenues, the macro-driven nature of markets currently and the likelihood of greater differentiation as the economic outlook becomes clearer.
Both McLeod-Clarke and Sheldon considered the probability of "Euro-geddon" as low but stated that credible borrowers were fundamental to stability and recovery in 2012.
However, darkness then descended as Alasdair Ross, Global Product Director at the Economist Intelligence Unit opened his presentation with the gambit - "What recovery"?
He demonstrated that despite corporate profits being at their highest level in more than 50 years declining sentiment in the US, Eurozone and China (growth in China is slowing as it's overall economic clout increases) plus a total grinding to the halt of growth in the 'B' of the BRICS indicates in Ross' view that recovery is far from assured. Indeed he quoted a figure of a 45% likelihood that the Eurozone will break up given the rescue plan is underpowered and underwhelming. He discussed the structural weakness of the US jobs markets, a general weakness of and the US debt mountain coupled with the obvious Euro difficulties as reasons for a weaker west in the next two years, albeit with emerging nations also coming off the boil.
John Dawson, Chairman of the IR Society and Head of IR at National Grid, finished the session by with a panel discussion addressing the importance of demonstrating the benefits of good IR through clear and consistent strategies and lots of outreach during uncertainty.
Those members who attended commented on the exceptionally high calibre of speakers and the value of topics discussed. The policy forum is one of our key annual events and all members would benefit from attending and be sure to pick up useful and relevant information. Thank you to all involved and Exane BNP Paribas for hosting the session.
Published: 8 December, 2011