The Group KD Group and KD Group dd

The KD Group Annual Report 2009
ANALYSIS OF OPERATIONS
Capital markets in 2009
The US and Europe in 2009
In the latter months of 2008, the financial crisis of 2007, with its epicentre in the USA who account for almost one quarter of
the world’s GBD and over 16 percent of global demand, shifted from financial markets to the real market, spreading to the
whole world. In the first quarter of 2009 there was no single safe investment as all sectors were in the red. In the beginning of
March, the US S&P 500 index fell through the 700 barrier and continued its fall, reaching its lowest point in the past thirteen
years on 9 March with 666 points. There was much talk about the possible repeat of the depression from the 1930s, about
the volatility of the financial system, potential nationalisation of some of the largest US banks, and similar scenarios. When
the probability of such scenarios occurring reduced and several sectors succeeded to regain the position before the failure of
the US investment bank Lehman Brothers, the conditions were right for the beginning of the strong growth of global stock
markets. The winner of the first half of the year was the technology sector which in the first six months of 2009 gained 24.08
percent, followed by the energy and raw materials sector with 12.28 percent growth and the sector of durable consumer
goods which in that same period gained 7.52 percent, whereas the financial and industrial sector remained in negative
figures in the first half of 2009 recording a 4.76 percent and 7.68 percent decline respectively. In the second half of 2009, the
market needed proof that the economy had reached the bottom and was eagerly awaiting the first information of the actual
outset of economical revival in the developed world. The next condition for higher exchange quotations was the publication of
profits achieved in the second quarter of 2009 which, in the case of US S&P 500 index, surpassed all analysts’ expectations
in over 70 percent of announced results. In addition to these, the zero interest rates and support in the increased liquidity of
central banks which additionally contributed to high gains on stock markets, should not be overlooked. After the credit crunch
in the second half of 2008 and the first few months of 2009, central banks were forced to, with increased liquidity, support the
financial sector, make available credit lines and support the remaining economy in the developed world. The US S&P 500
index recorded a nearly 26 percent growth at the end of 2009 and by the beginning of March, it increased by a total of 68
percent compared to its lowest point. Last year’s growth of the S&P 500 index is the highest since 2003. Revival of the
labour market and accessibility to and availability of new loans will be of key importance in 2010. The question of how stable
is the final consumption which is, as has been demonstrated several times, to a large extent dependent on the repayment of
debt of US consumers, still remains. In the past 20 years, consumers financed increased consumption with ever increasing
indebtedness, a process which is, at least for the time being, locked. Increased consumption on account of higher stock
market prices cannot be expected since real estate prices continue to be under pressure and nearly two thirds of an average
American family’s assets are tied in this particular segment. The rate of savings is currently stable at around 4 and 5 percent
and since production capacity utilisation remains at historically low levels, no wage and salary increases can be expected at
least in the short-term. The main risks that could in 2010 surprise investors include the following:
• Private sector’s inability to compensate for reduced government subsidies.
• Analysts’ expectations during the year may become too optimistic.
• Bank balances are worse than is currently reported.
• Any difficulties in China.
• Problems with government debt (Greece, Spain, Portugal, Ireland, Italy and other)
• US dollar growth and break in the “carry trade” process.
Other global markets
In the developing economies, the beginning of 2009 was marked primarily by a number of crises aimed at stimulating the
national economies. Central banks continued to reduce the base interest rates, while the governments were providing
cashrescue plan, planning increased budget expenditures and through changed tax policies, waived future budgetary
revenue. In November the government of the largest Asian economy, China, adopted aid package of nearly US$ 600 billion,
which accounts for nearly 15 percent of its gross domestic product, with a view to primarily increase expenditure for
infrastructure construction and modernisation, reduce taxes and provide welfare aid to the poorest. The global crisis was a
strong signal to China that it will have to change its GDP structure, increase the share of domestic consumption and reduce
its dependency on imports. In spite of a widespread scepticism that prevailed at the beginning of 2009, it is clear today that
in 2009, Chinese economy with its 8.7 percent growth in GDP, was the main driving force behind the global economic revival.
Despite low exports, by fiscal and monetary measures China succeeded in making domestic demand the principal driver
behind economic growth. With almost no exceptions, in 2009 central banks in developing economies reduced interest rates
and some also reduced obligatory reserves which commercial banks have to ensure.
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