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Seven days: 21 April 2017

A round-up of the most important business stories during the past week
April 20, 2017

May day

The UK has been added to the list of European countries set for a general election this year, after Theresa May called a vote scheduled for 8 June. In an about-turn from previous assertions that the next general election would be held in 2020, Mrs May said a vote was necessary in order to successfully negotiate Brexit. The pound soared to a six-month high on the day of the announcement, presumably on hopes that the Conservatives would be able to gain a greater majority. By contrast the FTSE 100 fell 2.5 per cent, with many of its constituents making their money overseas.

IMF upgrades

Growth forecasts increased

Global financial stability has improved, but political uncertainty in the US and Europe still poses a risk, according to the International Monetary Fund (IMF). The IMF forecast global growth of 3.5 per cent this year in its Global Economic Outlook report, up from 3.1 per cent predicted in 2016. It cited buoyant financial markets and a cyclical recovery in manufacturing and trade.

Any old iron

Price support wavers

Macquarie Research believes the contraction in iron ore and Chinese steel prices is “long overdue” as overly exuberant perceptions of pricing and demand levels give way to more realistic “fundamentally supported” levels. The recovery in prices encouraged miners to ratchet up production, ultimately overwhelming demand and sending the market into surplus. Iron ore prices have been bolstered by a lengthy period of restocking, but that has drawn to a close. And despite attempts to pare back overall capacity, Chinese crude steel output surged in March, leading to excess inventories. As ever, the cure for high prices is high prices.

Energy challenger

Junior plans IPO

Verditek, a holding company with three businesses focused on the clean technology sector, is to join the London Stock Exchange’s junior market, generating around £3.5m in the process. The company is involved in next-generation solar panel technology, liquid gas absorption for CO2 capture and emission control and filtration systems. The industry can certainly be described as a ‘comer’. Last year, Microsoft’s Bill Gates, Amazon’s Jeff Bezos and a group of high-profile investors formed a new venture firm, Breakthrough Energy Ventures, which will pour at least $1bn into clean-tech companies over the next 20 years.

PCP fuels probe

FCA plans investigation

The Financial Conduct Authority (FCA) plans to investigate the car leasing market, according to its latest annual business plan. The watchdog raised concerns about a lack of transparency in the market and a potential conflict of interest. The FCA said it would examine who uses these products and how they are sold. This includes assessing whether customers should have to pass tougher credit checks to borrow. Personal contract plans (PCP) – whereby cars are bought on credit and a minimum resale price is guaranteed at a later date – have helped fuel growth in car finance. Around 80 per cent of new cars are sold on PCP, according to the Society of Motor Manufacturers and Traders.

Power to the people

Energy companies fall foul

The government is taking another tilt at energy companies’ pricing policies following “flagrant mistreatment” of customers. Business and Energy Secretary Greg Clark told MPs he planned to take action following widespread criticism over price rises, particularly in relation to heavyweight suppliers – EDF, British Gas, E.on, Npower, SSE and Scottish Power. The move follows a two-year investigation by the Competition and Markets Authority, which identified costs to the consumer estimated at £1.2bn a year. Details are thin on the ground, but remedial measures could include a price cap on the standard variable tariffs.

Henderson’s special dividend

Sentiment still sour

Investment gains and currency effects saved Henderson (HGG) during the first three months of the year. Assets under management were up £2.1bn on the previous quarter to £103.1bn. However, the asset manager suffered £1.4bn in net outflows from its retail assets and £0.4bn from institutional. There was some good news for investors – management has announced plans to pay a special dividend of 1.85p a share in May, ahead of its merger with US asset manager Janus Capital.

Institutional investors appear to be becoming wary of equity valuations in some regions, and the US in particular, with a notable shift in sentiment towards other jurisdictions over the past month. According to the Bank of America Merrill Lynch Global Fund Manager Survey, which canvasses opinion from 203 fund managers representing $593bn (£464bn) of assets under management, the past month has seen the fifth largest rotation from US stocks to the eurozone since 1999 with allocation to US equities at its lowest level since January 2008. Those investors surveyed have also bought into emerging markets strongly but remain short of UK stocks. Meanwhile, as our chart shows, almost one-third of those surveyed felt that global equities are overvalued, the highest reading since early this century. In particular, 83 per cent said they felt US stocks are overvalued but nearly half think emerging markets are undervalued, while 19 per cent think the same about European shares.