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TRANSCRIPT
Global Strategy
EquityResearch
MARKET CYCLES22 October 2004
If you would like to receive this publication, please e-mail [email protected]
Chris Mellor+44 20 7762 [email protected]
Bijal Shah+44 20 7762 [email protected]
Dhaval Joshi+44 20 7762 [email protected]
In just the last five years, China’sshare of global trade has surged to 9%from 6.5%. And this boom in China’sproduction of goods for export is un-likely to abate. Both foreign direct in-vestment and the number of workersemployed by foreign companies con-tinue to rise, as firms flock to utiliseChina’s massive and ultra competitivelabour force. And with bright pros-pects for both employment growthand incomes, Chinese consumer con-fidence is likely to remain buoyant.Real consumer spending growth isunlikely to slow from its robust 10%pace.
So at first glance, it is strange that op-timism towards China’s economy innewspaper articles has plummeted.Only 52% of news stories on theeconomy are now reporting strengthcompared to a peak level of 73% sixmonths ago. But in China, around 30%of GDP is investment spending. Andbecause of fears of over-investmentcombined with bottlenecks in energysupply, the Chinese authorities areconstraining the lending that financesinvestment spending. Indeed, in cer-
steel into China are plunging while ex-ports of Chinese steel are soaring. In-deed, in September, China became a netexporter of steel for the first time in nineyears. The danger is that the excess Chi-nese production could soon flood theglobal market and depress global steelprices. Underweight global steel produc-ers.
tain energy-intensive sectors, like con-struction, lending has collapsed. Withfinancing increasingly difficult tocome by, investment intentions in Chinaare plunging.
Evidence of a slowdown in China’s in-vestment spend is accumulating. Ex-ports from Japan, Germany, Korea andTaiwan, economies that provide Chinawith equipment and machinery, nowappear to be growing much moreslowly after surging for three years. Andwith China being the main destinationfor capital goods in recent years it isunsurprising that, for example, Japan’smachinery makers are no longer see-ing their foreign orders rising. So asChinese investment demand goesthrough a growth pause, the shareprices of global industrial equipmentand machinery makers may correctsharply.
China’s domestic demand for steel isalso experiencing a plateau after sev-eral years of strong growth. But Chi-na’s steel output continues to surge, asthe steel companies are reluctant toswitch off production. So, imports of
Copper is a metal that has a very di-verse range of uses in the globaleconomy. Hence, the demand for cop-per is a great gauge of global activity.As global copper inventories are nolonger falling at the major exchanges,demand for copper seems to be sof-tening, and the rally in the copper priceis losing momentum. With Chinese in-vestment softening, and US consumerspending being depressed by high en-ergy costs and a lack of borrowing,the danger is that global economicgrowth continues to decelerate, at leastuntil US bond yields plunge furtherand lift US refi activity. Copper andother metal prices are vulnerable to adownturn. Underweight global miningstocks.
China: investmentintentions, index
98 99 00 01 02 03 044
5
6
7
8
9
Japan: exports ofmachinery toChina, % YoY
98 99 00 01 02 03 04-40
-20
0
20
40
60
80
China: steelimports, ‘000tonnes
97 98 99 00 01 02 03 04
000'S
0
10
20
30
40
50
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Market Cycles
22 October 20042
China: the world’s workshop
Foreign firms add to their workforce in China
China: number employed by foreign owned enterprises, mn
Foreign investment continues to rise
China: foreign direct investment, yuan bn annualised
2000 2001 2002 2003 2004
000'S
7
8
9
10
11
12
13
14
15
2000 2001 2002 2003 2004100
150
200
250
300
350
... as exports to the US and Europe surge
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
000'S
0
20
40
60
80
100
120
___ Chinese exports to the US, $ bn annualised___ Chinese exports to Europe, $ bn annualised
China grabs a greater share of global trade ...
Chinese exports as a % of global trade1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
In just the last five years, China’s exports have surged from 6.5% to 9% of all global exports. Moreover, China’sexports to the US and Europe have more than doubled in just the last two years.
And the boom in China’s production of goods for export is unlikely to abate soon. Both foreign direct investmentand the number of workers employed by foreign companies continue to rise, as firms flock to utilise China’smassive and ultra competitive labour force.
22 October 2004 3
Market Cycles
Chinese consumers benefit ...
21/10/04
1998 1999 2000 2001 2002 2003 200430
35
40
45
50
55
60
65
70
75
80
30
35
40
45
50
55
60
65
70
75
80
Sentiment towards Chinese economic activity turns down
China: positive economic news articles as a % of all news stories
Rising employment and incomes drive confidence and retail sales higher
1998 1999 2000 2001 2002 2003 20046
7
8
9
10
11
12
13
1
2
3
4
5
6
7
8
___ China: retail sales volume, % change over one year___ Chinese consumer confidence (R H Scale) Source: IFO World Economic Survey
... but Chinese economic outlook weakens?
With brightprospects forbothemploymentgrowth andincomes,Chineseconsumerconfidence islikely to remainbuoyant, andretail sales,currentlygrowing at anextremelyrobust 10% pacein real terms,ought to keepgrowing at arapid pace.
So at firstglance, it isstrange thatoptimismtowardsChina’seconomy innewspaperarticles hasplummeted inrecentmonths. Only52% of newsstories on theeconomy arenow reportingstrengthcompared to apeak level of73% sixmonths ago.
Market Cycles
22 October 20044
Funding for capex dries up
1998 1999 2000 2001 2002 2003 200412
13
14
15
16
17
18
19
20
21
22
12
13
14
15
16
17
18
19
20
21
22
Chinese authorities clamp down on lending
2000 2001 2002 2003 2004250
300
350
400
450
500
550
600
250
300
350
400
450
500
550
600
Construction loans decline by a third
1996 1997 1998 1999 2000 2001 2002 2003 20044.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
Investment intentions at post tiger crisis levels
Chinese banks and financial institutions monthly loans to construction enterprises, bn yuan
China: investment intentions, index Source: IFO World Economic Survey
China: M2 growth over one year
In China, investmentspending accounts foraround 30% of GDP. Butbecause of bottlenecksin energy supply, andalso because of fears ofover-investment, theChinese authorities haveput a squeeze on thelending that is financinginvestment spending.Money supply growth, ameasure of new lending,has plunged in the lastyear.
In certainenergy-intensivesectors, such asconstruction,lending hascollapsed.
With financingincreasingly difficultto come by, it is notsurprising thatChinese companies’investment intentionsare plunging. And thismay also explain whysentiment towards theeconomy hasdeteriorated.
22 October 2004 5
Market Cycles
Imports of equipment slow
1998 1999 2000 2001 2002 2003 2004-40
-20
0
20
40
60
80
100
1998 1999 2000 2001 2002 2003 20040
50
100
150
200
250
300
1998 1999 2000 2001 2002 2003 2004-10
0
10
20
30
40
50
60
70
Exports to China from equipment producing economies are slowing
Exports to China, % change over one year
1998 1999 2000 2001 2002 2003 2004-20
-10
0
10
20
30
40
50
Japan Germany
Korea Taiwan
Evidence of a slowdown in China’s investment spend is accumulating. Exports from Japan, Germany, Korea andTaiwan, economies that provide China with equipment and machinery, now appear to be growing at a very sedatepace after surging for three years.
Market Cycles
22 October 20046
___ Japan: foreign machinery orders, smoothed___ World: engineering and machinery relative to food and beverage sectors (R H Scale)
1996 1997 1998 1999 2000 2001 2002 2003 200430
35
40
45
50
55
60
65
70
75
80
-40
-30
-20
-10
0
10
20
30
40
50
60
China’s economic newsflow worsens; Japan’s machinery makers’ export orders decline
Japan’s machinery exports to China slow markedly
___ China: news stories on economic strength as a % of all news articles___ Japan: foreign machinery orders, % change over 1 year, smoothed (R H Scale)
Japan: exports of machinery to China, % change over 1 year
Avoid engineers and machinery makers
Japan, China’stop tradepartner, hasalready seen asharpslowdown inits exports ofmachinery toChina.
And witheconomicsentiment inChina slipping, itis not surprisingthat Japan’smachinerymakers are nolonger seeingtheir foreignorders rising.
The investmentboom in China hasbeen the main reasonfor the soaringdemand forindustrial equipmentand machineryaround the world. Soas Chineseinvestment andeconomic activity gothrough a growthpause, the shareprices of globalindustrial equipmentand machinerymakers may correctsharply. 1997 1998 1999 2000 2001 2002 2003 2004
400
450
500
550
600
650
700
750
800
0.14
0.16
0.18
0.20
0.22
0.24
0.26
0.28
If Chinese machinery demand plunges, global machinery sector may correct sharply
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004-30
-20
-10
0
10
20
30
40
50
60
70
-30
-20
-10
0
10
20
30
40
50
60
70
22 October 2004 7
Market Cycles
Chinese steel demand softens
1997 1998 1999 2000 2001 2002 2003 2004
000'S
5
10
15
20
25
30
35
40
45000'S
5
10
15
20
25
30
35
40
45
Chinese steel imports plummet
China: steel exports, thousand tonnes1997 1998 1999 2000 2001 2002 2003 2004
000'S
0
2
4
6
8
10
12
14
16
18000'S
0
2
4
6
8
10
12
14
16
18
China: steel imports, thousand tonnes
1997 1998 1999 2000 2001 2002 2003 2004
000'S
100
120
140
160
180
200
220
240
260
280
300000'S
100
120
140
160
180
200
220
240
260
280
300
Chinese steel demand plateaus
1997 1998 1999 2000 2001 2002 2003 2004
000'S
80
100
120
140
160
180
200
220
240
260
280
300000'S
80
100
120
140
160
180
200
220
240
260
280
300
Chinese steel production heads higher
China steel demand: (production+imports-exports),thousand tonnes
China: steel production, thousand tonnes
Chinese steel exports climb
“China last month became a netexporter of steel for the first time innine years.” Michael Jivkov,
The Independent, 21/10/04
China’s domestic demand for steel is also experiencing a plateau after several years of strong growth. But China’ssteel output continues to surge, as the steel companies are reluctant to switch off production. So, imports of steelinto China are plunging while exports of Chinese steel are soaring. The danger is that the excess Chinese productioncould soon flood the global market and depress global steel prices. Underweight global steel producers.
Market Cycles
22 October 20048
Warehouse stocksat the LME, Comex andShanghai Exchange,‘000 tonnes
Source: CRU
construction
power andtelecominfrastructure
lighting
machinery
transport
consumergoods
15
13
1214
18
28
Principal uses of copper
96 97 98 99 00 01 02 03 0460
70
80
90
100
110
120
130
40
60
80
100
120
140
160
180
Is the rally in metals running out of steam?
___ Economist metal price index___ Global mining sector index (R H Scale)
JFMAMJ JASONDJFMAMJ JASO
000'S
0
500
1000
1500
2003 2004
Copper stocks stabilise at exchanges
Copper: a universal commodity
Global economic newsflow worsens; copper loses momentum
___ World: news stories on economic strength as a % of all news articles___ Copper price, % change over 1 year (R H Scale)
98 99 00 01 02 03 04 0590 91 92 93 94 95 96 9730
35
40
45
50
55
60
65
70
75
-60
-40
-20
0
20
40
60
80
100
Copper is a metal that has a verydiverse range of uses in the globaleconomy. Hence, the demand forcopper is a great gauge of globalactivity.
As global copper inventories are no longer falling at themajor exchanges, demand for copper seems to besoftening, and the rally in the copper price is losingmomentum.
With both Chinese investment and US consumer spendingcurrently softening, the danger is that global economicgrowth continues to decelerate. Copper and other metalprices are vulnerable to a downturn. Underweight globalmining stocks.
22 October 2004 9
Market Cycles
Commodity Prices ($)
14-Oct-04 -1 mth -2 mths -3 mths
Gold 417 406 398 404Oil - Brent Crude 50.9 41.9 43.9 38.4Ethylene - $/tonne 983 993 970 888Steel - $/tonne 593 590 570 570Copper - $/tonne 2770 2769 2767 2761
Economist Industrial 100 97 98 100CRB index 285 273 269 275Baltic Freight Index 4473 4205 4148 4068
Commodityprices
OND J FMAMJ J ASO200
250
300
350
400
OND J FMAMJ J ASO25
30
35
40
45
50
55
OND J FMAMJ J ASO250
300
350
400
450
500
Commodity prices to watch
Scrap steel Crude Oil Lumber
London Metal Bulletin, price index ___ Brent, light sweet crude, $/bbl___ Arab Gulf Dubai $/bbl
US: price per 1,000 board feet, $
Freightrates
OND J FMAMJ J ASO1000
1500
2000
2500
3000
OND J FMAMJ J ASO2000
3000
4000
5000
6000
Tanker rates up
Oil Tanker rates Dry Freight Rate
Baltic dirty tanker rate index Baltic dry freight rate index
2004 2004 2004
2004 2004
Market Cycles
22 October 200410
Consensus GDP growth forecasts
J F MA M J J A S O N D J F M AM J J A S O N D3.00
3.50
4.00
4.50
5.00
3.00
3.50
4.00
4.50
5.00
J F MA M J J A S O N D J F M AM J J A S O N D2.00
2.50
3.00
3.50
4.00
2.00
2.50
3.00
3.50
4.00
J F MA M J J A S O N D J F M AM J J A S O N D1.00
1.20
1.40
1.60
1.80
2.00
1.00
1.20
1.40
1.60
1.80
2.00
J F MA M J J A S O N D J F M AM J J A S O N D1.00
1.50
2.00
2.50
3.00
1.00
1.50
2.00
2.50
3.00
J F MA M J J A S O N D J F M AM J J A S O N D0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
J F MA M J J A S O N D J F M AM J J A S O N D5.50
6.00
6.50
7.00
7.50
5.50
6.00
6.50
7.00
7.50
US
Germany
Japan
UK
France
Asia ex Japan
20042003
20042003
20042003
20042003
20042003 20042003
2005
2004
2004
2005
2005
2004
2004
2005
2005
20042004
2005
Source: Consensus Economics
22 October 2004 11
Market Cycles
Global Sectors
Asset allocation tables
Mixed UK Fund Benchmark
Europe Mixed Asset Benchmark Global Equity Benchmark
GDP forecasts
FT/S&P Actuaries SG ModelWorld Indices (%) Portfolio (%) Bet
Defensive equity markets +4.0Overweight North America 56.0 62.0 6.0Underweight UK 10.0 8.0 -2.0Cyclical equity markets - 4.0Underweight Continental Europe 18.0 15.0 -3.0Underweight Japan 10.0 7.0 -3.0Overweight Non Japan Asia 6.0 8.0 2.0
1998 1999 2000 2001 2002 2003 200440
45
50
55
60
65
70
75
80
85
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2.60
___ Global inflation news index: news stories on worsening inflationas a percentage of all articles on inflation
...... Yield gap between 10-year US bonds and US inflation linkedsecurities (R H Scale)
Global inflation newsflow index
SG Economists GDP Growth Forecasts
Overweight ReasonGeneral Insurers Bond proxyBanks (US) US refi set to surgeConsumer staples Defensive and Asia playPharmaceuticals DefensiveTelecom wireless -emerging Asia Asian consumer spendMedical equipment Healthcare spend rapidSemiconductors US refi set to surgeConsumer electronics manuf US refi set to surge
Underweight ReasonRetail (UK) UK slowdownBanks (UK) UK loan growth slowsBasic Industries Chinese newsflow peaksCapital goods manuf Chinese newsflow peaks
Benchmark SG ModelDistribution (%) Portfolio (%) Bet
Neutral Equities 40.0 40.0Europe 28.0 24.0 -4.0US 8.0 13.0 5.0Japan 3.0 1.0 -2.0Non Japan Asia 1.0 2.0 1.0
Overweight Bonds 50.0 60.0 10.0
Underweight Cash 10.0 0.0 -10.0
Average UK Pension Fund SG ModelDistribution (%) Portfolio (%) Bet
Neutral Equities 65.0 65.0UK 45.0 44.0 -1.0US 6.0 10.0 4.0Continental Europe 8.0 6.0 -2.0Japan 3.0 1.0 -2.0Non Japan Asia 3.0 4.0 1.0
Overweight Bonds 26.0 30.0UK gilts 13.0 17.0 4.0Index-linked gilts 9.0 7.0 -2.0Overseas bonds 4.0 6.0 2.0
Underweight Cash 4.0 0.0 -4.0
Neutral Property 5.0 5.0
Country 2003 2004e 2005e
United States 3.0 4.3 3.7Japan 2.7 4.2 2.5
UK 2.2 3.4 2.4Germany -0.1 1.4 1.9France 0.5 2.6 2.2Italy 0.4 1.2 1.4Spain 2.5 2.6 2.5
Australia 3.0 3.4 2.3Canada 2.0 3.0 3.5
Market Cycles
22 October 200412
Newsflow of economic storiesOur proprietary newsflow indicator shows the number of newspaper and newswire articles which report economicstrength. This is expressed as a percentage of all economic news stories. Trends in newsflow reflect sentimenttowards trends in the underlying economy. For example, in the UK, the percentage of strong economy news storiesis now at 55%. At the peak of the cycle in May, 75% of all news stories related to economic strength.
89 90 91 92 93 94 95 96 9725
30
35
40
45
50
55
60
65
70
75
98 99 00 01 02 03 0425
30
35
40
45
50
55
60
65
70
75
89 90 91 92 93 94 95 96 9730
35
40
45
50
55
60
65
70
75
98 99 00 01 02 03 0430
35
40
45
50
55
60
65
70
75
89 90 91 92 93 94 95 96 9720
25
30
35
40
45
50
55
60
65
70
98 99 00 01 02 03 0420
25
30
35
40
45
50
55
60
65
70
US Newsflow of Economic StoriesWorld Newsflow of Economic Stories
89 90 91 92 93 94 95 96 9720
30
40
50
60
70
80
98 99 00 01 02 03 0420
30
40
50
60
70
80
UK Newsflow of Economic StoriesEurozone Newsflow of Economic Stories
Pacific Rim Newsflow of Economic StoriesJapan Newsflow of Economic Stories
89 90 91 92 93 94 95 96 9730
35
40
45
50
55
60
65
70
75
80
98 99 00 01 02 03 0430
35
40
45
50
55
60
65
70
75
80
89 90 91 92 93 94 95 96 9735
40
45
50
55
60
65
70
75
80
85
98 99 00 01 02 03 0435
40
45
50
55
60
65
70
75
80
85
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> Home > Newsflow > Call/Put ratios > Director Dealings
Global Strategy
Investors, directors, analystsMARKET CYCLES
EquityResearch
22 October 2004
If you would like to receive this publication, please e-mail [email protected]
Chris Mellor+44 20 7762 [email protected]
Bijal Shah+44 20 7762 [email protected]
Dhaval Joshi+44 20 7762 [email protected]
In a bull market, bullish in-vestor sentiment tends toprecede consolidation,whereas bearish investor sen-timent tends to precede sharprallies in equity prices.
Ratios of Call Volumes to Put Volumes Overbought OversoldThe ratio of call volume toput volume is a good indica-tor of investor sentiment.When investors are bullish,more calls and fewer puts arebought.
US T-BondNone
Investors are pessimistic on the outlook for US bonds: more puts on Treasuries are being bought than calls. The lasttime investors were this negative towards bonds, in May, bond yields were at 4.8%. Indications of economic weaknesssince May have pulled bond yields down to their current 4% level. Despite no sign of improvement in the economyinvestors are once again betting that bond yields are set to rise. Any further weakness in the economy is likely toprompt significant rallies in the bonds.
Investors bearish on Treasuries: weakness in economic data can lead to massive rallies
10 yearTreasuryyield, %
3.00
3.50
4.00
4.50
5.00
5.50
T-bond call to putvolume ratio
2003 20040.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2001 2002
Market Cycles Investors, directors, analysts
22 October 20042
Investors: Bond call/put ratios
......... The bands are one standard deviation either side of the average
US Treasury Bond: Call/Put Ratio
O N D J F M A M J J A S O N D J F M A M J J A S O0.60
0.80
1.00
1.20
1.40
1.60
1.80
0.60
0.80
1.00
1.20
1.40
1.60
1.80
Source: DATASTREAM
German Bund: Call/Put Ratio
O N D J F M A M J J A S O N D J F M A M J J A S O0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
Source: DATASTREAM
US Three-month Eurodollar: Call/Put Ratio
O N D J F M A M J J A S O N D J F M A M J J A S O0.50
1.00
1.50
2.00
2.50
3.00
0.50
1.00
1.50
2.00
2.50
3.00
Source: DATASTREAM
2002 2003 2004
2002 2003 2004
2002 2003 2004
> Home > Newsflow > Call/Put ratios > Director Dealings
22 October 2004 3
Market Cycles Investors, directors, analysts
Investors: Equity call/put ratios
Hong Kong: Call/Put Ratio
1998 1999 2000 2001 2002 2003 20040.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Source: DATASTREAM
1998 1999 2000 2001 2002 2003 20040.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
Source: DATASTREAM
Japan: Call/Put Ratio (Osaka)
US: All Equities Call/Put Ratio *
1998 1999 2000 2001 2002 2003 20041.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
HIGH 3 31/12/99, LOW 1 21/9/01, LAST 1 15/10/04
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
Source: DATASTREAM
US: Nasdaq Call/Put Ratio #
1998 1999 2000 2001 2002 2003 20040.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Source: DATASTREAM
............................................
........................................................................................
............................................
* calls and puts bought on individual equities # calls and puts bought on the Nasdaq 100 index
......... The bands are one standard deviation either side of the average
Market Cycles Investors, directors, analysts
22 October 20044
Investors: Equity call/put ratios
1998 1999 2000 2001 2002 2003 20040.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
Source: DATASTREAM......... The bands are one standard deviation either side of the average
Spain: Call/Put Ratio
1998 1999 2000 2001 2002 2003 20040
0.50
1.00
1.50
2.00
2.50
0
0.50
1.00
1.50
2.00
2.50
Source: DATASTREAM
Germany: Call/Put Ratio
1998 1999 2000 2001 2002 2003 20040.40
0.60
0.80
1.00
1.20
1.40
1.60
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Source: DATASTREAM
UK: Call/Put Ratio France: Call/Put Ratio
1998 1999 2000 2001 2002 2003 20040.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Source: DATASTREAM
22 October 2004 5
Market Cycles Investors, directors, analysts
Source: Vickers
HealthcareStaples
US director deals in own stock: by sector
21/10/04
0.80
2
4
6
8
10
12
14
15
16
17
18
19
20
21
2002 2003 20040
50
100
0
50
100
21/10/04
1
5
10
15
20
25
16
18
20
22
24
26
28
2002 2003 20040
50
100
0
50
100
Total number of directors dealing in their own stock
0.50
2
4
6
89
0.50
2
4
6
89
1996 1997 1998 1999 2000 2001 2002 2003 20040
1000
2000
0
1000
2000
US Director Sell/Buy Ratio, NasdaqUS Director Sell/Buy Ratio, NYSE
US director deals in own stock: NYSE and Nasdaq
0.30
2
4
6
810
0.30
2
4
6
810
1996 1997 1998 1999 2000 2001 2002 2003 20040
1000
1500
0
1000
1500
....... The bands are one standard deviation either side of the average
Total number of directors dealing in their own stock
Director dealingWho better than directors to know what their company’s near-term profits outlook is like? Directors tend to sellstock in their own companies if they believe it will miss analysts’ forecasts and buy if they believe it will beatforecasts. Hence, the ratio of directors selling relative to directors buying is an excellent indicator of the outlookfor company profits in the coming quarters.
___ 12 month unweighted forward PE based on consensus earnings estimates (R H Scale)
> Home > Newsflow > Call/Put ratios > Director Dealings
Market Cycles Investors, directors, analysts
22 October 20046
US director deals in own stock: by sector (contd.)MediaConstruction and Building Materials
0.50
5
10
15
20
8
9
10
11
12
13
2002 2003 20040
20
40
0
20
400.80
2
4
6
8
10
15
20
25
30
35
40
2002 2003 20040
20
30
0
20
30
Leisure, Entertainment and HotelsGeneral Retailers21/10/04
0.60
2
4
6
8
101214
16
18
20
22
24
26
28
30
2002 2003 20040
20
40
0
20
40
21/10/04
1
5
10
15
20
2530
14
16
18
20
22
24
2002 2003 20040
20
40
0
20
40
InsuranceBanks and Finance21/10/04
0.60
2
4
6
8
10
12
11.00
11.50
12.00
12.50
13.00
13.50
14.00
2002 2003 20040
50
100
0
50
100
21/10/04
0.60
1
2
3
4
5
6
11
12
13
14
15
16
17
2002 2003 20040
20
40
0
20
40
Source: Vickers
Total number of directors dealing in their own stock___ 12 month unweighted forward PE based on consensus earnings estimates (R H Scale)
22 October 2004 7
Market Cycles Investors, directors, analysts
Non-US director deals in own stock
UK Director Sell/Buy Ratio
0.04
0.20
0.40
0.60
0.801.001.20
0.04
0.20
0.40
0.60
0.801.001.20
1996 1997 1998 1999 2000 2001 2002 2003 20040
500
0
500
....... The bands are one standard deviation either side of the averageTotal number of directors dealing in their own stock
German Director Sell/Buy Ratio
0.04
2
4
68
10
0.04
2
4
68
10
2002 2003 20040
50
0
50
directortransactionsmade publicfrom thisdate
volumevolume
Hong Kong Director Sell/Buy Ratio
0.12
0.20
0.40
0.60
0.80
1.00
1.201.40
0.12
0.20
0.40
0.60
0.80
1.00
1.201.40
1999 2000 2001 2002 2003 20040
100
200
0
100
200volume
Market Cycles Investors, directors, analysts
22 October 20048
Analysts’ earnings revisions
90 91 92 93 94 95 96 97 98 99 00 01 02 03 040
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
World: number of credit upgrades ticks up again
Upgrades to bond credit ratings as a % of total changes to ratings, averaged over three months
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04-25
-20
-15
-10
-5
0
5
10
15
20
-25
-20
-15
-10
-5
0
5
10
15
20
Earnings per share forecasts for next fiscal year: % of forecasts revised up less % of forecasts revised down,largest 200 companies, globally, seasonally adjusted
World: analysts’ earnings revisions lose upward momentum
3-monthmovingaverage
raw data
All charts supplied by Datastream and SG Equity Research, except where otherwise indicated.
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