Investment Column: If China sneezes, Glencore catches a cold

BAE Systems; St James's Place Capital


Our view: Hold

Share price: 476.45p (-1.2p)

Glencore's float earlier this year was variously billed as record-breaking and blockbuster – and it was. At $10bn, the dual London and Hong Kong listing made the Swiss commodities trader the first company in the last 25 years to the enter FTSE 100 index at admission. Ordinarily, new floats have to bide their time until one of the index's quarterly reshuffles, but Glencore was christened a blue chip right at the start of its public life.

The business is certainly vast, with the group active in trading all manner of commodities. It also owns mines and stakes in leading miners, including part of Xstrata. Earlier this month, it sealed an agreement to buy control of the Mina Justa copper project in Peru.

Indeed, part of the rationale for listing was to strengthen the company's ability to fund big deals. The sector has seen a lot of activity – Ernst & Young recently said that the value of mining deals had doubled over the first half – and the listing gives Glencore the ammunition to match up to rivals.

But despite all this – and a bevy of "buy" notes from analysts – the stock remains below the 530p issue price. Investors, it seems, are not quite as excited as headline writers, who had a field day with the "secretive" trading giant. We suspect the weakness is not so much down to controversy as it is to concerns over the price of commodities such as copper, which is up strongly since the start of 2010. Recently there have been rumblings about the possibility of a correction if big consumers such as China slow down.

Inflation in emerging markets is very – some say uncomfortably – high. Central bankers have already raised rates, and could do so again, hitting activity and precipitating an economic slowdown. That would reduce demand for commodities. The world's appetite for metals could also suffer if the Eurozone (or, even worse, the US) serves up a sovereign debt disaster. But on balance, we'd hold for now. Just don't buy any more.

BAE Systems

Our view: Buy

Share price: 306.8p (+14.3p)

With military budgets being slashed across the world, the defence groups have – rather unsurprisingly – not been having a great time of it lately. For BAE Systems, 2011 has been particularly tough, and its share price has dropped nearly 15 per cent since the start of the year.

The group started yesterday trading at its lowest level since 2005, yet it ended the session as the blue-chip index's top performer. The catalyst was a reassuring set of figures, with the £90m fall in its first-half profits before tax to £691m largely expected.

The bounce in BAE's share price, therefore, was partly the market breathing a sigh of relief, while investors were also encouraged by the dividend being increased by 7.1 per cent as well as the announcement of a £500m share buyback.

BAE still believes its sales for the year will be behind, but there were no real new shocks in the outlook statement. The immediate concern is that the US will decide further cuts in its military spending are required, although BAE's chief executive, Ian King, was making confident noises, saying it was "in the fast lane and the sweet spot" in the country.

The issue of government spending will certainly continue to weigh on the stock for the short-term. However, the battering its share price has taken – combined with the confidence shown by management with the share buyback – suggests upside ahead, if you are prepared to wait.

St James's Place Capital

Our view: Buy

Share price: 356p (-1.1p)

St James's Place Capital caters for those with more than £30,000 to invest, with the help of a 1,600 strong army of financial advisers. It's proved hugely successful.

Annualised premium income (which combines regular and single premiums) for the first half of 2011 grew to £335.6m against £292.6m last year. JP Morgan Cazenove had forecast £328m. Total funds under management were 8 per cent higher since the start of the year at £29.1 billion and it hiked the dividend 58 per cent.

There's little to complain about here. We said buy at 281p in January and the shares have done us proud. They still, however, only trade at around the forecast net asset value per share. No longer a bargain, but they are hardly expensive.

SJP is majority-owned by Lloyds Banking Group, which said it had no plans to sell up after a recent review. Good decision. Keep buying.

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