Outlook: Blue Circle

ORDINARY INVESTORS may be running scared of emerging markets but many companies are plunging back in, attracted by what are supposed to be once-in-a-lifetime fire sale prices. One of these is Blue Circle Industries. Over the past year it has bought stakes in two cement companies in the Philippines and added to its investment in a third. Regardless of political and economic turmoil in the Far East, it is now splashing out pounds 351.2m to expand its interests in Malaysia with the acquisition of Kedah Cement Holdings Berhard. Meanwhile in Latin America, Blue Circle is actively pursuing the acquisition of Argentina's largest cement company to add to its existing leading position in the Chilean market.

The timing of many of these investments might seem questionable. In Malaysia, for instance, demand for cement is still plummeting. For the second half of this year it is expected to show a decline of 35 per cent, with a further 10 per cent slump predicted for next year.

What is more, the prices being paid for these assets are hardly bargain basement any longer, despite economic crisis. In the short term, at least, the Philippines acquisition will be earnings dilutive, while Blue Circle faces such stiff competition from the likes of Lafarge for the Argentinian interests that in all probability it will be outbid.

So although the emerging markets crisis has brought forth the sellers, the buyers have been out in force too, using the crisis to snap up assets on an unprecedented scale.

In the Philippines, foreign ownership of the cement market has gone from nothing two years ago to more than 70 per cent today.

The latest Malaysian acquisition will give Blue Circle half the total market there, similar to the monopoly position it enjoys back home. More astonishing, the big five multi-national cement groups, of which Blue Circle is one, probably now account for rather more than 60 per cent of total global cement trade.

In these circumstances it is perhaps not surprising that there is a growing backlash against Western free market liberalism in many developing countries.

Anglo Saxon speculators are accused of causing the crisis in the first place, and now Western companies are accused of using the economic turmoil to obtain control of key industries.

The cement industry is a mighty vivid example of this process.

From a corporate perspective, Blue Circle seems to be pursuing the right strategy, but it is not yet clear how the developing world is going to respond to the emergence of this new global oligopoly. There could be trouble.