Gold plated?

Gold Plated
Lord Alan Sugar has one: AMS 1. The Duke and Duchess of Cambridge drove away from their wedding with one that read JU5T WED and broadcaster Chris Evans has several. Personalised number plates are big business these days with the UK market worth an estimated £2.3bn a year. However, it’s not just the rich and the famous who buy personalised number plates. For the thousands of drivers who actually have personalised number plates they are regarded as a statement of individuality or an investment.

A proud Bristolian recently paid more than £20,000 for a registration plate in close correlation to the city’s name – BR15 TOL. However, this sum falls short of the highest-fetching registration plate of all-time 25 0 which sold for £518,000 at a special 25th anniversary event in 2014. Motorists recently splashed out £1m in just twenty minutes to snap up the latest 2016 personalised number plates on offer with CH16 SEA and MA16 UTD selling for almost £400 each while JA16 UAR was sold for almost £1,300. However, the DVLA has already banned the issue of some potential number plates such as OR16 ASM which, is considered too rude. In addition, ahead of the forthcoming EU referendum, the plates EU16 YES, EU16 NON and EU16 OUT have been blocked.

Which got us thinking. With Christmas rapidly approaching, we wondered if Father Christmas had purchased a personalised number plate, perhaps 5ANTA, 5LE1GH BELLS, CHR15 TMAS or SA1NT N1CK? Given how fast he travels in his sleigh, we suspect the number plates must have a special reflective coating that renders them invisible to speed cameras. If not, think how many speeding points he would collect on Christmas night and how many police speed awareness courses he would have to attend!

What have we been watching?

Is it time to take cover? Certainly, dividend cover or rather the lack of it looks like being one of the main investment concerns as we head into 2016.

Mining giant Anglo American waived its dividend. The extent of the pain it is seeing is reflected in the decision to cut its workforce by a staggering 85,000 globally to 50,000. While the market had expected a cut in the dividend, the complete waiving of dividend came as a shock and made income investors start to think about other potential dividend cutters. Yields of 8% and over in parts of the mining sector are already ‘red flagging’ dividend cuts, while the oil sector is also under increasing pressure post the chaotic OPEC meeting. Global oil majors and mining groups will no doubt be re-visiting capital spending and asset disposal plans early in the New Year to bolster cash flow and dividends creating more pain in turn for their supplier base. The iron ore price also hit a ten year low as China trade data came in below expectation.

The outlook for resource stocks looks as challenging in 2016 as it has been in 2015. However, ‘every cloud has a silver lining’ and with lower oil prices, consumers and major fuel users like the airlines should be better off. Within the FTSE 100 resource stocks are on the ropes but the management teams of UK consumer goods and service companies are no doubt feeling ‘pretty chipper’ as the outlook for consumer spending is probably the best it’s been for a good ten years.

Another potential headwind for equities globally in 2016 remains sovereign wealth funds forced to sell to cover deficits in their countries due to low commodity prices. It is estimated that sovereign wealth funds in the Gulf withdrew $19bn from fund managers in Q3 due to the low oil price. If fund managers see cash redemptions then they become forced sellers. For example, Saudi Arabia which, has the fourth largest sovereign wealth fund, worth an estimated $672bn has withdrawn $70bn in 2015 to support its economy.

British Flag
In the UK house prices slipped slightly in November but according to the Halifax the ‘acute imbalance’ of supply and demand means prices are set to keep rising. The BoE delivered another 8-1 decision to keep interest rates on hold accompanied by a dovish set of minutes. With lower oil prices and signs that the pace of earnings growth has begun to level off, it seems likely that the decision to start increasing UK interest rates can be delayed well into 2016.

In Europe, the French mainstream political parties were stunned by the news that the far-right National Front (NF), led by Marine Le Pen, had emerged as clear winner of the first round of regional elections in the wake of the terror Paris attacks. However, the FN failed to win a single region in the second round of the municipal elections.

USA Flag
In the USA, despite the current global uncertainty, press reports suggested that Dow Chemical and du Pont were in possible merger talks. This continues the trend of US driven mega-mergers with Dow and DuPont having market values of over $58bn and $59bn respectively. The main event in the US is later this week, on Wednesday with the Fed decision on the first interest rate hike since 2006. Any further delay would be an earth shattering blow to its credibility.

Japan Flag
Japan’s GDP data tends to be notoriously unreliable and prone to major corrections so it came as no real surprise to learn that Q3 GDP data had been revised upwards from a technical recession to modest growth.

China Flag
In China, the central bank reported one of the biggest drops ever in November in foreign exchange reserves to $3.4 trillion and the lowest level since the end of 2013. However, a significant part of the fall can be attributed to the strength of the US Dollar. The Renminbi hit a four year low against the US Dollar. Exports fell by more than expected in November while imports also dropped by 9% signalling continued weak demand from the world’s second biggest economy. Chinese headline CPI inflation edged up to 1.5% in November but PPI remained deep in deflationary territory at -5.9% suggesting further stimulus is likely from the central bank.

Oil Drum
Oil dropped below $40 to a new seven year low in the wake of the OPEC meeting which failed to deliver any solution to how the cartel is going to deal with the additional supply from Iran in 2016. The CEO of French energy giant Total said that he does not expect a recovery in oil prices in 2016 and that non-OPEC supply and particularly US shale production is unlikely to contract until at least mid-2016. The weak Chinese trade data added to the misery.

This is the last Alpha Bites of 2015 and what a year it’s been. Wishing all our clients and readers a very Merry Xmas and prosperous 2016! Alpha Bites will be back in the New Year with the usual, slightly different take on weekly developments in global equity markets.


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