The market's initial hesitancy can be attributed in part to so-called 'October-syndrome', as many investors are unable to forget that this was the month both of the crash of 1987 and the mini-crash of 1989. But the chief reason motivating investor hesitancy were the continuing fears of rate hikes as became obvious when the whole financial world held its breath in anticipation of a possible interest rate move by the U.S. Federal Reserve, the U.S. central banking system, on September 24.
RECORD HIGHS
At times however a cautious shift away from interest-driven trade to result-driven market was perceptible, signalling that interest rate trends are losing their grip on share prices. This is only logical, for sooner or later rates are bound to rise. Institutional investors in particular could not wait and stepped into the market in search of stocks seen posting good returns. Partly due to the Fed's failure to hike rates, Wall Street climbed to unprecedented heights. New York's out performance, together with the firm dollar and favourable domestic company news, combined to drive the AEX-index to new record highs. Over September the index rose from 550.99 to 576.96, a gain of nearly five per cent. The MidCap index climbed even more strongly, rising 53.27 points t 892.32 from 839.05.
RECORD TURNOVER
By September 6, total turnover on the Amsterdam Exchanges NV had already outstripped the figure for full-year 1995 at 1,364.8 billion guilders. Bond turnover amounted to 953 billion guilders, while share turnover amounted to 417 billion. In 1995 it took until November to exceed the previous year's total turnover level.
Over the whole of September total turnover amounted to 138.4 billion guilders, compared with 156.3 billion guilders in August and 116.9 billion guilders in September 1995. Share turnover amounted to 47.8 billion guilders compared with 42.9 billion a month earlier and 31.9 billion guilders in the same year-earlier month. September bond turnover amounted to 90.6 billion guilders, down from 114 billion guilders in August but up year-on-year from 85 billion guilders in September 1995. Government bonds accounted for 80.6 billion guilders in turnover.
THE INTERNATIONAL CONTEXT
Amsterdam's excellent performance was not an isolated case. Wall Street also rocketed to unprecedented highs according to its market barometer, the Dow Jones index. The index soared to a record all-time high of 5894.74 at the close on Monday September 23 having even briefly nosed above 5900 during the session.
Oddly enough, when the Fed announced on September 24 it had opted to hold interest rates steady for the time being defying general expectations of a 25 basis point hike already factored into prices Wall Street responded with a dip in prices.
The situation was tense early in the month when the U.S. fired missiles at Iraqi targets. But after a brief panic reaction also noticeable in Amsterdam, the markets went back to the order of the day. However, oil prices remained high, which while benefiting the oil companies had a negative impact on companies such as airlines. The Dow Jones closed the month at 5882.17, just below its peak.
Although the U.S. revealed a major balance of trade deficit, the dollar held firm in the market, rising to nearly 1.70 guilders. For dollar-sensitive stocks this proved a major shot in the arm.
AMSTERDAM STOCK EXCHANGE SHARES
Despite several lacklustre days early in the month, the Amsterdam AEX soared to a new high. Investors apparently managed to conquer their fear of heights and the October syndrome as the month progressed. In addition to the interest rate trends, the Dutch economic position and the good first half figures from Dutch corporates were the main engines for a rally.
From an economic point of view there seemed to be only good news . Inflation is set to stay low and consumer confidence is increasing while research among both small and medium-sized companies and the major corporates showed business confidence on the up. In addition the budget silenced all critics.
The upbeat climate enabled many stocks to climb to new record share price highs. This was particularly true of the most actively traded stocks. Within days of the Wall Street record, the top five index climbed to a new high of 886.34. This index reflects the share price trends of Philips, Unilever, Akzo, KLM and Royal Dutch Petroleum.
Of these five KLM is struggling somewhat, partly due to the assumption that the higher oil prices will have a negative impact on results. On the other hand it is argued that the airline works with long term contracts with regard to fuel deliveries. Royal Dutch Petroleum on the other hand reaped the benefits of the higher oil prices. The stock later gained an added fillip from the higher dollar.
Akzo was in demand because the chemicals industry is seen performing well, but an even stronger influence on the share price was that the company has developed a new anti depressant that is said to book better results than the competition's well-known Prozac.
Philips was also in demand because the company showed a good haand in the area of patents. I addition the arrival of the new chairman, Boonstra, was viewed with confidence.
Unilever surprised the market with a rapid price rise in an extremely short time after senior executive Fitzgerald said that a large part of the company's product range would be reviewed and judged on the basis of returns generated. That was music to the ears of investors, but later common-sense intervened as people realised it would all take time. Investors also sensed a possible setback for the company in the shape of the poor summer which could have depressed ice cream sales.
This could be termed an Heineken effect. The brewer released disappointing profit figures, leading to an 11 percent plunge in its share price. A slump in beer sales during this year's poor summer and a downward adjustment in its profit forecast were the chief reasons for the fall.
The general opinion on the trading floor was that a growth stock which gives such bad tidings will inevitably be badly punished. Traders and analysts were particularly irked by the way in which the company announced the setback.
DOMESTIC MARKET
The domestic market also soared to new heights. With international blue chips sustaining their highs, investor interest is now extending to local stocks. This month alone saw the introduction of three investment funds focussing exclusively on this segment of the Amsterdam market.
Included in this segment are construction companies such as NBM Amstelland, which are well-placed to benefit from the major infrastructural projects listed in the 1997 national budget. Builder Heijmans, however, lost considerable ground on the back of disappointing first-half figures.
The temporary employment agencies are riding the wave of the economic upturn. Randstad is sitting pretty, while Goudsmit's share price has mushroomed since it spun off its poorly performing exclusive menswear chain Society Shop and concentrated exclusively on temporary employment activities. Stocks such as retail concerns Vendex and KBB were also able to benefit from the increase in Dutch consumer confidence.
Share price performance in the automation and computer segment was mixed. Cap Volmac booked attractive gains, but PC manufacturer Tulip lost a lot of ground. Disappointing figures were also behind a fall of more than 10 percent in Smit Internationale's share price.
BONDS
The decision by the U.S. Federal Reserve to hold interest rates steady is a sign that U.S. economic growth and the associated inflation risk has not yet reached the stage that these trends need to be braked. On the other hand there are fears that no change in interest rates now presages a heftier hike in the future. In the Netherlands the effective yield stood at 5.49 percent at end- September. This was due in part to a relatively low demand for capital from the private and public sectors.
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For more information please contact:
Thom Hoedemakers Paddy Manning
Amsterdam Exchanges NV St James Corporate Communications
Tel: +31 20 523 4014 Tel: 0171 436 4101