Forget the banks, what about the house builders and Mining companies
Article source: Nick Fletcher - www.guardian.co.uk
Financial institutions like banks, building societies and insurers have been under great financial pressure recently and have received a lot of bad media attention. Now it is becoming clear that as well as the parties quoted above, house builders and miners are beginning to feel the brunt of the credit crunch.
Institutional investors as well as retail investors are beginning to avoid investing their cash in these types of businesses. The evidence is here.
City analysts still believe that Xstrata, the global mining group, with interests in copper, thermal coal, ferrochrome, vandium, zinc and coaking coal, amongst other raw materials, will pursue with its attempted acquisition of Lonmin, the platinum metals producer. Xstrata lost 139 pence of its share value and now trades at £19.07.
Xstrata already has already built up a 10 percent share in Lonmin, but paid a £33.00 premium for the shares. The company now has until the 2nd of next month to make a formal offer; after the 2nd of October the mining group will have to wait another calendar year to be able to make an offer. City analysts believe that it will play on the current market conditions to enable it to avoid increasing its offer price.
The share price of Kazakhmys, one of the largest copper producers in the world, also suffered a drop, down to 674 pence, a loss of 43.5 pence.
The reason why these mining companies are suffering is down to future estimates on the demand for their product. This is having a direct effect on their share price. Only the price of gold remains buoyant at $920 an ounce.
The reason why housing developers like Barratt Developments and Taylor Wimpey are suffering is closely linked to the state of the mortgage market. With mortgage products becoming increasingly scarce and with much tougher qualifying requirements, this is having a knock on effect on their business and ultimately has led to, and will continue to lead to, a fall in demand for new build properties. With the already falling house prices, the finished houses that these developers are sitting on will be worth significantly less than already anticipated. This will in effect lead to huge asset write downs on the balance sheets of these respective companies. The effective of these potential write downs is being felt now and is reflected in their falling share prices.
Taylor Wimpey is 3.5 pence lower at 42.75 pence with Barratt Development’s share price also dropping to from 10 pence to 121.25 pence.
In other news, the hotel group Intercontinental saw its share price rise by 2 pence, upto 692 pence. This comes amid news that Diyafa World Limited (the Dubai Government owned business), have increase their share holding in Intercontinental to 4.23%. This added with speculation that the owners of the Ritz hotel chain, the Barclays Brothers list Intercontinental as one of their take over targets, can only be seen as positive news for the emerging hotel chain.
George Bush, President of the United States, made a television appearance in an attempt to drive through the £700 billion US financial bail out package and restore the confidence of onlookers. Before he went on air the Dow Jones Industrial Average was down 119 points; it current stands only 30 points down; his speech appeared to have made some impact.
The US bail out package will, to some extent, be used to purchase mortgage assets and sell them back to the financial institutions once the markets recover.
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