2011 was a year of Old Testament plagues and frogs and investors will be glad to see the back of it. But just as share investors plan retreats from emerging markets down 20%, and developed countries, down nearly 10%, the dice must be rolled again. As Woody Allen once said, "If you want to make God laugh, tell him your plans". Last week saw the largest single downgrade day of countries in history, and the news, leaked ahead of the opening bell, triggered dumping in Europe and then waterfall selling in New York. But the dip was bought –dip-buying is what bull markets are all about- and the market recovered about 2/3 of its losses. A market rebounding ahead of a 3 day weekend despite a downgrade in 9 European countries shows that buyers have been doing their press-ups over Xmas, or at least that sellers are sated by Xmas pudding. And this time European bond markets showed as much muscle as the stock markets. At its fearful and tempestuous heart, this is a still a credit crisis, so credit market bounces in Europe are the best news of all. Happy New Year.

Shale-shocked Natural Gas now trades at USD2.40, cheapest in a decade, Aviate Securities say. US electricity prices have fallen 50% since 2008 and the USA, oft derided as post-industrial, is fast becoming one of the cheapest areas in the world to grow capacity. With the world at their feet, policy wonks at Ford, Emerson, Caterpillar and Intel have all chosen to build new plants in their own back yards, and even the Europeans are in on the game (Conti is building a USD 500m factory in South Carolina). BP believes the US will be energy self-sufficient by 2030 and this has geo-political implications. For one thing, Neo-Connery foreign policy -inspired by M. King Hubert’s peak-oil theory in the late 60's- may now begin to look out of touch, and with it Free World strategy towards the Middle-East (fewer troops in the Gulf, less defence spending on both sides of the Atlantic). The losers, when the rest of the world has cheap energy? The United States of Europe, watching and waiting for shale gas technology to improve (did I hear that cheap, clean gas-injection technology could replace expensive, dirty water-fracking?). The winners in this cheap energy but recovering world? Volume oil producers with elephantine developing country resources like Total (PER 7.5x, Yield 5.7%) and ENI (PER 9.9x, Yield 5.9%). And the Non-Military Industrial Complex, best represented by resurgent industrial miners Rio Tinto (PER 8.0x, Yield 2.1%) and BHP Billiton (PER 8.7x, Yield 3.5%). We bought them all this week.

Our Emerging Middle Class theme quasi-monopoly telecom in Senegal, Sonatel (Yield 10%) is going global. It’s announced "roaming" deals with 20 telecom operators, everywhere from Switzerland to Saudi. Roaming comes in some confusing shapes and sizes: pre-paid, post-paid, GPRS and 3G, for example. But the message is simple: data and mobile usage is surging Out Of Africa and Sonatel plans to cash in. A 10% yield sounds too high for a near-monopoly 42% owned by France Telecom with growth prospects.

Profits are growing at +20% per annum at Ageing Population theme stamp collector Stanley Gibbons (PER 11x, Yield 3.2%), founded in 1856. (Nerdy philatelists know 1856 to be the year of issue of the world’s rarest stamp, the British Guiana 1c magenta, where only one specimen is now known to exist, a scarcity comparable today to stock market bullishness). Internet sales are +67% ahead of last year and the China business is going up like a Chinese rocket (1 in 3 stamps sold in the world are sold in PRC). Management speaks of "exceptional" sales growth in 2011 as financial markets panicked investors into things they trust, like stamps, medals, coins and bank notes. Contrarians may care to reflect that today’s European sovereign debt may one day grace peoples’ walls as a cherished "collectible". But the best advice must be to buy it after a default!

Our chant has been that the Dow EuroStoxx banks index needs to hold above 105 to convince us that equity rallies are sustainable. European banks lie at the epicentre of global financial risk. Logically, they should be the canary in the coal mine for toxic assets and further equity market falls. I am glad to say the index closed on Friday at 107.15, after a +20% rise in 10 days. A move lower followed by a higher low, my wily technical guru tells me, would indeed make it a Happy New Year, though not for the 95% of our industry that is under-weight bank stocks.


This diary (the "diary") is published by Global Thematic Investors Limited, a company domiciled in Hong Kong and incorporated under the Hong Kong Companies’ Ordinance on the 15th September, 2005. The diary is not intended for private customers and is written to be read solely by sophisticated investors, such as family offices, business corporations, banks and financial intermediaries. Statements are completely personal and may change without notice, are often forward-looking and therefore subject to uncertainty and risk. The predictions and forecasts implied may not subsequently be achieved. The diary is composed of information and opinion believed to be accurate, though this information may not have been verified. Funds or collective vehicles may only be open to certain persons in certain jurisdictions and may follow strategies that are speculative and involve a high risk of loss and may go up as well as down (a favorable performance record is no indication of future performance).