Wednesday, 22 July 2009

The return of Mergers and Acquisitions

There are many reasons for thinking the stock market will continue to fall after the recetn rally; what has been an impressive 8.7% on the FTSE this week.

As ever it is not just economic news which drives the markets, but political too.

This article in the FT could be a key one for the next few months. China is set to expand its acquisition strategy in resources, oil and financial services. With the still beaten down prices of Western Assets and the burst commodity bubble, they would be wise to get a move on and buy soon.

The £2.3 trillion they have to spend is quite a war chest. This no doubt makes some stocks on the UK markets look ripe for take-over. In particular oil and gas and resources companies are a tthe fron tof the queue, Caledon Resources may be first and yet there is still a discount to its expected sale price in the current share price. Another could be Dana Petroleum and perhaps even a move to break up Heritage Oil's merger with Turkey's Genel.

In the smaller caps, Africa has been a recipeient of much Chinese attention so many of the companies there which are developing and exploiting resources may well be fair game for a Chinese take-out.

Even if the markets do turn down again, these plays are going to keep this sector relatively strong, unless oil prices go back to $30 again from the current $60.


Ed said...

I think the Chinese government might well be lending HMG a few quid in the next few months... Time to join the renmimbi?

James Higham said...

If one looks at the overall, the Chinese are using foreign exchange reserves to buy expand and the west is close to economic collapse.

My blog began a few years back on he basis of the Chinese strategy laid out and the anticipation of the paradigm shift.

It all seemed fantasy land then or at least not until 2020. Now it seems a lot closer.

CityUnslicker said...

BE - would be a godo trade, their currency is only gong upwards. A pair trade is to invest in that whilst shorting a country doing the opposite...that would be the UK!

JH - Quite right, you have been sound on this issue for as long as I have been blogging. The political and cultural aspects are as important or even more so than the economic drivers.

James Higham said...

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Fred said...

China is set to expand its acquisition strategy in resources

Erm, I've been tracking Peak Oil since 2001 and China have been very busy with acquisitions and securing energy contracts for as long as i've been tracking the subject.

So has the FT just realised that? or is China stepping up an already very determined program of securing resources?

Mark Wadsworth said...

Right. The Chinese dump $2 trillion of US and other government bonds and snap up a couple of oil companies.

That's going to do wonders for the stock and bond markets.

CityUnslicker said...

Fred - it is a step up in activity, probably due to their seeing the resources as cheap at the moment and a fear of only buying US T Bills with all their money.

Mark - I doubt they need to spend $2 trillion all at once. What is the correlation between T bills and the Stock market; I honestly don't know of any. On the whoel I think this is supportive of Western markets. China shovelling money into building empty factories is a much worse strategy and yet the one China has been pursuing to date,