Russia's risky, but worth it

By Heather D'Alton Dec 07, 2005

*** BG’s fortunes could run dry

*** There’s nothing wrong with Safeway

*** Why investors respond to fear...Gold up to $500/oz?...ignore Russia at your peril...and more..      --------------------- – Gas outfit BG Group enjoyed the higher gas prices, with net earnings up some 40% in its second quarter in comparison to last year, to £275m. Its share price traded 1% up yesterday, and has gained 35% since the start of the year.

– The problem is that, at some point in the future, BG’s fortune’s are likely to run dry. Why? The group is still riding high on its discoveries made early 2000, yet very few new projects have come on board in the meantime. As it is, BG Group has nearly doubled its exploration charges from last year – showing the group’s increasing desperation in tracking down gas fields. With the number of gas fields in decline, BG’s share price could follow suit. Shares traded at 475p yesterday.

– The FTSE 100 inched up 7 points on Wednesday, to trade at 5,263. The mid-cap 250 index added 0.8%, to 7,554 – to trade just below the all-time record at 7,567 triggered earlier this month.

– O2 closed as the top FTSE faller yesterday, as its biggest shareholder, US firm Capital Group, cashed in £530m worth of shares in the mobile group yesterday. Some 350m shares were sold, which reduced Capital’s holding from 7.5% in O2 to 3.1%. The sell-off pushed O2’s share price more than 3% lower yesterday.

– Meantime BPB gave French hunter Saint-Gobain more incentive to up its bid for the group. The plasterboarder yesterday said its pre-tax profit increased by 25% in the three months to end-June, while turnover rose some 12%. Saint-Gobain offered 675p per share for BPB last week – only to be sent packing. Yesterday BPB shares inched 0.3% lower, to 695p.

– Wm Morrison reported a 5% rise in its like-for-like sales in the first half, and said it should reach its profit target forecast early last month. Mind you, that very profit target has been lowered some five times, from £275m, now down to a maximum of £150m, as the group struggled to incorporate Safeway into its portfolio.

– Ironically, while former Safeway stores and unconverted Safeway stores saw like-for-like sales gains of 15% and 3% respectively, sales at Morrison’s core estate fell 3%. The group blamed this on the “cannibalisation of sales” as more Safeway stores convert to Morrisons. Morrison shares traded flat at 187p on Wednesday.

– And just through the Eurotunnel, France Telecom has bought 80% of Spanish mobile phone operator Amena, for some 10.6bn euro. Yet just last year, France Telecom announced it had amassed net debt worth some 50bn euro following a number of failed acquisitions that cost 100bn euro. So in order to calm down concerned FT investors, the group has had to tickle Amena’s vendors into positions they may not be too comfortable with.

--------------------    Investors: Learn To Control Your Emotions

– There are almost certainly parallels between our “reactions to the current geopolitical climate” and the way we respond to threats in the financial markets, says MoneyWeek’s Tim Price. The fact is that people...and investors...respond to fear, and not risk. In fact, financial markets “at a very fundamental level” reflect the human emotions of greed and fear – although economists dress them up as ‘supply’ and ‘demand’. The result? Controlling your emotional responsive could stand you in good stead.

Commodities Head For Unimaginable Levels– One group of investment managers, those at R H Asset Management, have just sold all their commodity holdings. Is that really such a good idea? Well, according to the managers, the problem is we are nearing a global economic slowdown, so things could fall in the short-term. But over the next 15 years, the commodity sector should surge ahead. Take gold: the price of gold is expected to hit $500/oz before the year is up. And then go even higher…

Russia May Be Risky, But You Can’t Afford To Ignore It– Russia’s benchmark stockmarket has risen some 15% in the last two months – in comparison to our UK benchmark, which climbed just over 5% over the same period, we note in the latest edition of MoneyWeek. It seems that, with oil oligarch Mikhail Khodorkovsky behind bars following the fall of Yukos, investors are returning to the region. Yes, of course there is still some risk in buying stocks there, but there are also a number of strong companies that look set to steam ahead over the coming months.

Published in Stock markets | More articles by Heather D'Alton

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