As we’ve already mentioned in Money Morning, one of the surest contrarian indicators we’ve found to date is the UK Government.
The Government loves to buy high and sell low. Look at Tony Blair’s adventures in the UK property market. Or the 800% return that US private equity group Carlyle stands to make on its stake in Qinetiq. Or Gordon Brown’s sale of half the UK’s gold reserves at a mere $275 an ounce in 1999.
And now this sure-fire indicator is screaming out that investors should find themselves some exposure to the other yellow metal – uranium. Let me explain…
Government-owned British Nuclear Fuels looks set to sell US unit Westinghouse, which builds nuclear power stations, to a subsidiary of Japanese conglomerate Toshiba.
Toshiba already builds and designs nuclear power stations in Japan, but the Westinghouse deal will give it more chance of winning overseas contracts.
It is reportedly set to pay $5bn for the unit, beating out competition from General Electric and Japanese rival Mitsubishi.
With oil and gas prices skyrocketing, nuclear power is gaining support across the globe, particularly in developing countries. As Takeo Miyamoto of broker CLSA points out: “Nuclear power generation is said to be vital to support power demand in such fast-growing countries as India and China.” China is expected to spend as much $54bn by 2020 on 27 new reactors.
And the UK may be looking to build more nuclear power stations too. Green lobby groups are concerned about the Government’s latest review of its energy policies. The Greens think it’s basically a cover to rush through a U-turn on nuclear plants.
Here at MoneyWeek, it’s not our remit to talk about the pros and cons of nuclear power. But we are here to tell you how the investment scenario might play out.
As we pointed out earlier, when the UK Government decides to sell out of a sector, it’s usually a good sign that investors should be ready to pile in.
And the best way to get exposure to demand for nuclear power stations is to buy into the commodity that fuels them – uranium.
Of course, you can’t just buy uranium the way you can pick up gold or silver. But there are a number of stocks you can invest in to get exposure to the “other yellow metal”.
We published a piece on how to invest in uranium from Martin Spring’s On Target newsletter in Money Morning a few months ago.
Moving onto other topics – the Japanese market has had a torrid time of it recently. The Nikkei 225 gained 288 points to 15,648 overnight, but that’s still nearly 5% below its 2006 high.
The Livedoor saga continues with yesterday’s arrest of the company’s chairman, Takafumi Horie. You can read more on why we don’t believe the trouble over Livedoor is something to be worried about, in today’s recommended article from MoneyWeek editor Merryn Somerset Webb.
But the jitters in Japan are not just about Livedoor. Monday’s stock market plunge on Wall Street, high oil prices, and worries over the strength of the US consumer are also hanging over Japanese shares.
There is no doubt that a US consumer slump would hit the global economy hard, and that many Asian economies would be particularly badly hurt. But of all the major global equity markets, Japan is probably the best-placed to weather a US slowdown.
Think tank Capital Economics points out that the Japanese economy is “not that dependent on the US.” Exports to the States accounted for just 2.9% of Japanese GDP in 2004. That compares to 7% for Korea, nearly 13% for China and almost 25% in Malaysia.
Also, unlike previous false recoveries, this one is being driven by rising domestic demand. Confidence among both retailers and consumers is on the rise – consumer confidence in particular is close to a 14-year high.
“Private consumption and private non-residential investment have made positive contributions to growth for three consecutive quarters now,” says CE. In other words, the man and woman on the street are helping the Japanese economy get back on its feet this time round.
As Merryn points out, we reckon it’s worth holding onto Japan if you’ve got it. And if you haven’t bought in yet, this may be an opportune moment to do so.
Turning to the UK markets…
The FTSE 100 slipped 11 points to 5,660. Telecoms stocks were among the main risers as O2 reported strong trading in the three months to December. Vodafone climbed 3% to 121p, while BT gained 2% to 207.25p. For a full market report, see: London market close.
Over in continental Europe, the Paris Cac 40 closed 21 points lower at 4,751, while the German Dax was flat at 5,348.
Across the Atlantic, US markets edged higher. Better-than-forecast results from car manufacturer Ford helped improve sentiment after disappointing figures from the technology sector last week. General Motors also rallied. The Dow Jones gained 21 points to 10,688, while the tech-heavy Nasdaq rose 1 to 2,248. The S&P 500 climbed 2 points to 1,263.
In Asian trading hours, oil was headed lower, trading at around $67.60 a barrel in New York, while Brent crude was at around $65.90.
Meanwhile, spot gold prices eased back to around $557 an ounce. Silver was trading at around $9 an ounce.
In other Asian stock markets, the South Korean Kospi rose 29 points to 1,326. Elsewhere in the region, the Australian ASX/S&P 200 rose 12 to 4,824, buoyed by mining giants BHP Billiton and Rio Tinto.
And in the UK this morning, mobile phone giant Vodafone’s customer growth has beaten City estimates for the last quarter of 2005. The group added 8.9m subscribers, compared to analysts’ forecasts for around 7m.
And our two recommended articles for today…
Don’t fret about Japan – the real worries lie due West±
– Is the panic over Livedoor a sign that Japan’s bull market is at an end? Not at all. Stay invested, says MoneyWeek editor Merryn Somerset Webb – all the good news on Japan’s economy from last year still holds true. To find out which markets you should really be worrying about, click here: recommended article
Why gold could rise another 534%
– The gold bull market has entered its second phase – it is now an exciting investment in its own right, not just an indication of dollar weakness, say John Robson and Andrew Selsby at RH Asset Management. But it’s still a long way from the mainstream. Just ask yourself – how many people do you know who have bought gold? To find out what will happen when they do, click here: Why gold could rise another 534%