Sell in May, as stock market sages say

June proved to be a poor month for shares. Stock markets were worrying about lower manufacturing output figures from the US and China, and about the likely impact on consumer demand from the increasingly tough measures governments around the world, including the UK, are taking to reduce budget deficits. In Britain the main share index the FTSE 100, which lists the top 100 shares by market capitalisation, has stayed below 5000 for the first time since October last year. It fell nearly 1000 points from its recovery peak of 5800 earlier in 2010, and the pattern in the rest of the world has been very similar.

Those who did take the old stock market advice of ‘Sell in May and Go Away, Don’t Come Back until St. Leger Day’ will have saved themselves considerable losses. However, it is a fair bet most people will have been taken by surprise by the severity of the fall, particularly now that the immediate worries over the debt burdens carried by Greece and to a lesser extent Spain and Portugal appear not to be panicking the markets quite as much as just a couple of months ago.

How in this still febrile atmosphere did Welsh quoted companies perform? Surprisingly, not quite as badly as might have been feared, thanks to a strong performance by a few of the companies in the selection we have been following since November last year, and to a modest recovery in the fortunes of some of the weaker performers. The total value of the 12 shares did indeed fall by a further £9 to £1,170.63 over the course of the month, compared with the initial nominal cost of £1,200 (though it should be remembered that in real life investors in these shares would in most cases have received some dividends during the period).

This small drop in value of less than 1 per cent looks good compared with a 5.4 per cent fall over the month in the FTSE 100, (in which sadly there is only one Welsh constituent, Admiral Group). Its better, too, than the 2.9 per cent fall in the FTMC mid cap market and the 4.1 per cent drop in the FTSE Aim index. It was also better than the performance of the FTSE over the eight month period and of AIM, though the mid cap market has actually advanced marginally since November.

The Welsh share selection was able to put in this sound performance in June partly as a result of rises in value at Admiral, which hit a new peak in June of more than £14 per share, before falling back again to just under this figure at the start of July. Strong results from acquisitive Welsh agricultural supplies merchant and speciality retailer, Wynnstay, also saw its shares rise to 264p at the start of July, down from a peak of 280 reached in mid-June after it announced a 12 per cent increase in pre-tax profits to £3.55m.The company said it was seeing a robust performance in its agricultural supply division on the back of increased feed trade volumes and a recovery in fertiliser demand.

There was also a welcome recovery during June in the share price of Enfis, the Swansea lighting specialist. Its shares, which at one point in the past year were as high as 100p, were back to 15p having fallen as low as 8p at one point. The original nominal investment of £100 in the company would  still only be worth £28.50 so its recovery still has a long way to go.

Welsh Share Selection (share code in brackets)	Price Nov 5 2009	No. of shares	Value Nov 5 2009 £	Price June 3 2010	Value June 3 2010 £	Price July 3 2010	Value July 3 2010 £	+/- June 2010 – July 2010	+/- Nov 2009 – July 2010
								%	%
Amerisur Resources (amer)	7.72	1290	100	14.05	181.24	12.75	164.47	-9.3	65.2
Admiral (adm)	1059.0	9.4	100	1308	122.95	1399.44	1315.5	7.0	32.1
Boomerang Plus (Boom)	95	105	100	75	78.75	75	78.75	0	-21.1
Enfis (enf)	53.00	190	100	12	22.8	15	28.5	25	-71.7
Freshwater* (fwuk)		547		18.5	101.31	19.5	106.66	5.4
Finsbury Food (fif)	26	385	100	15.75	60.63	15.06	57.98	-4.4	-38.2
Internat. Greetings (igr)	72.90	137	100	61.05	83.63	56.67	77.63	-7.2	-22.3
IQE (iqe)	18.41	543	100	17.33	94.1	17.36	94.26	0.2	-5.7
Moneysupermarket. com ((mony)	77.65	129	100	64.9	83.72	73.4	94.68	13	5.5
Pure Wafer (pur)	3.75	2666	100	6	159.96	5.5	146.63	-8.3	46.6
Redrow (rdw)	146.10	68	100	126.3	85.88	107.8	73.30	-14.6	-27
Wynnstay (wyn)	225.30	44	100	238	104.72	264.15	116.22	11	17.2
Welsh Ind Inv Trust* (wii)	215.00	46	100	–	–
Total Cost/Value			1200		1179.7		1170.6
	Index
FTSE	5125			5116		4838		-5.4	-5.6
FTMC	9020			9554		9276		-2.9	2.8
FTSE Aim All Share	652			681.2		653.3		-4.1	0.0

*Freshwater replaced Welsh Industrial Investment Trust on May 4^th following the latter’s winding-up.

^Percentage change is for one month only from May 5^th.

Moneysupermarket.com, the north Wales price comparison site, also had a better month. Its shares, which have traded in the range 46-91p over the past year, climbed back up to 78p in June before falling away again at the month’s end to 73p, still a 13 per cent increase over the beginning of June.

There were further declines over the month, however, in cake manufacturer Finsbury Foods, (down 4.4 per cent since the start of June and down 38 per cent since November), in International Greetings (7.2 per cent and 22.3 per cent respectively over the same periods) and in Redrow  (14.6 per cent and 27 per cent.). Redrow, the housebuilder, has clearly been affected by continuing worries over the state of the housing market and in particular fears that house prices could be starting to fall again. Its shares, which during the course of the past year have been as high as 249p, are now languishing at not much more than £1, having held up at around 140p for much of the early part of 2010.

One of the start performers over the past eight months, the Cardiff-based oil exploration company, Amerisur Resources, has also suffered a setback over the past month, possibly as a result of the negative sentiment surrounding the oil sector in the wake of BP’s problems in the Gulf of Mexico. At one stage this year Amerisur’s shares had more than doubled compared with last November but they are now trading at 65 per cent ahead of the original nominal purchase price. The company also announced a pre-tax loss of £1.3m for the year ending 31 March ^t compared with a profit of £49,000 for 2009.

Where the Welsh share portfolio will go over the next few months is hard to predict, and it is worth pointing out that market capitalisation of some of the smaller constituents and hence trading volumes tend to be very low. Cutbacks in public sector spending will affect some of the companies represented, as will weaknesses in domestic and export markets. Nor are the measures announced in the Welsh Government’s new economic strategy likely to offer any short-term support, as the impact of a switch to a climate-inducing rather than a directly-supporting role is likely to take time.

Support for the portfolio’s overall valuation is likely to remain dependent, therefore, on its small number of very consistent performers and the occasional surprise performer.