***Why you should look outside the UK for profit growth
***An easy way to buy into Asia's bright future
***RECOMMENDED ARTICLES: Why good times can be bad for investors... How to survive the end of the credit boom...
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Central banks around the world are raising or about to raise interest rates. All except our own Bank of England.
The European Central Bank yesterday raised the key eurozone interest rate to 2.5%. It's the second rate hike in four months, and comes amid concerns about rising inflation, property bubbles, and evidence that the region's economy is showing signs of improving growth.
But back in the UK, analysts cling to the hope that slowing economic growth will eventually lead the Bank of England to trim rates this year.
While we don't doubt that the UK's economic growth is weak and getting weaker, there's still the other part of the interest rate equation to worry about inflation
Interest rate doves were dealt another blow yesterday. Train and bus operator Arriva said it plans to raise bus fares to offset surging fuel costs this year. The group expects UK fuel costs will rise by more than £14m in 2006 compared to a rise of £6m in 2005.
This comes on top of double-digit energy bill hikes and an average council tax rise of 4.5% - more than twice the current rate of consumer price inflation. All of these rising costs will make it very difficult for the Bank to maintain inflation near its 2% target this year.
Luckily for Arriva, people generally have to take the bus, regardless of rising costs. But not all companies are as fortunate. Newspaper publisher Trinity Mirror is also facing rising costs. Chairman Vincent Blank said the group is looking at "significant cost pressure from newsprint price increases of 7%, increased energy costs, increased labour costs and other inflationary cost increases."
But there seems little chance of passing these costs onto customers. The Daily Mirror owner has seen advertising revenues fall heavily. Group advertising sales were down 13.5% year-on-year during January and February. Recruitment advertising in particular has seen "a sharp decline".
Online competition is undoubtedly taking its toll - but it's not just about the internet. Unemployment has been rising steadily for about a year now, and when companies start to worry about rising costs, one of the first budgets to be squeezed is marketing.
So it's not a great time to be at the mercy of the UK economy. But one FTSE 100 stock which reported strong annual results yesterday can boast virtual immunity to the UK consumer slowdown. Why? Because it makes most of its money in Asia.
Banking group Standard Chartered's profits beat City forecasts. Pre-tax profit jumped 19% to $2.7bn, helped in part by acquisitions including its $3.3bn purchase of Korean bank SC First Bank last April.
The bank expects double-digit income growth this year though growth in costs is expected to match revenue growth. But the bank's chief executive Mervyn Davies points out that this reflects heavy investment. "We're a company with very strong growth potential and we've got to make sure we invest for the future as well as produce profits in the short term."
The shares are now trading at around 16 times earnings for last year. But the company's lack of exposure to the UK consumer means its premium to the rest of the UK-listed banking sector is justified. It's also an attractive potential takeover target.
But there could be cheaper ways to get exposure to Asia, and China in particular. One region in which Standard Chartered is looking to grow is Taiwan. Taiwan's stock market has been one of the weakest performers in the region, but there are several reasons why this is likely to change in the near future.
You can find out more about these, and learn why MoneyWeek editor Merryn Somerset Webb reckons Taiwan will be a great place to invest some of your Isa money this year, simply by clicking here: A cheap way to make money from China
And you can find more on the best stock-picks in Asia, including a Thai bank and an Indonesian resources play, in the latest issue of MoneyWeek magazine, out today.
If you're not yet a subscriber, you sign up for a three-week free trial of the magazine, and gain access to all the content on the MoneyWeek website, just by clicking here: Sign up for a three-week free trial of MoneyWeek.
Turning to the wider markets
The FTSE 100 fell 11 points to 5,833. Life insurer Aviva was one of the top gainers, up 4% to 820p as annual results trumped City expectations. For a full market report, see: London market close.
Over in continental Europe, stock markets reacted badly to the interest rate hike, which the ECB has made clear is far from the region's last. The Paris Cac 40 fell 48 points to 5,009, while the German Dax dropped 83 to close at 5,783.
Across the Atlantic, US stocks fell back as crude oil prices rose and retailers reported mixed results. The world's largest retailer Wal-Mart saw same-store sales rise 3.2% in February, but underlying sales at clothing chain Gap fell 11%. The Dow Jones fell 28 points to 11,025, while the S&P 500 fell 2 to 1,289. The tech-heavy Nasdaq dropped 3 to 2,311.
In Asian trading hours, oil moved higher, to trade at around $63.70 a barrel in New York. Brent crude was trading at around $63. Fears over Nigerian militancy and attacks in Saudi Arabia are keeping traders nervous.
Spot gold was trading at around $569 an ounce. Silver hit a 22-year high of $10.23 an ounce, before easing back to $10.19 as investors continue to hope that the launch of a silver-based exchange traded fund will be approved, drawing new interest to the market.
In Asian stock markets, the Nikkei 225 fell 246 points to 15,663. Core consumer prices (which exclude fresh food costs) rose in January at their fastest rate since March 1998, raising speculation that the Bank of Japan may end its near-zero interest rate policy very soon.
And here in the UK, pubs group JD Wetherspoon said pre-tax profit rose 21% in the six months to January 22, to £27.4m. But like-for-like sales at its non-smoking pubs continued to fall, down 7.6% on the previous year. And the group remained cautious about the second half - most Wetherspoon's pubs have no TVs, so the World Cup later this year could well hurt sales, rather than lift them.
And our two recommended articles for today...
Three reasons why good times can be bad for stocks
- There's currently a lot of optimism on the outlook for the world's major economies. So isn't this a good sign for investors? Don't bet on it, says Martin Spring in the On Target newsletter. There are three good reasons why booming economic growth could mean hard times are ahead for stocks - to find out what they are, click here: Three reasons why good times can be bad for stocks
How to survive the end of the credit boom
- The credit glut that has sustained the global economy for the past five years is coming to an end. Japan, Europe and the US are all raising, or about to raise interest rates, cutting off the world's supply of cheap money. This will have far-reaching consequences for three investment trends in particular, says unconventional fund management group, Bedlam Asset Management. To find out what they are, click here: How to survive the end of the credit boom
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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