Regular features from June 2006 126th Issue

Value in Europe

I well remember my first continental holiday as a young man in Europe . It seemed so exotic and a world away from my country town in Ireland .

Many many years later whenever I return to that continent I still seem to recapture some of the magic of my first trip there.

It now appears that the World's top fund managers are capturing magic returns from their funds around the European continent.

To take a few samples of year to date performance from Jan 1.

Merrill Lynch Europe + 30.03%

J.P.Morgan Easter Europe +33.2%

Carnegie Swedish Growth +17.2%

Fidelity Nordic +19.4%

So have you missed the boat in Europe ? Is it too late?

Listen to Nick Palmer Sales Director with Fidelity.

“ Europe has consistently been amongst the strongest performing regions of the world,

With the MSCI Europe ex UK index returning 100.7% over three years to end February 2006 outperforming the MSCI World Index by 35.8%.

Despite this, investors have focused on relatively weak economic news from Continental Europe and inferred a poor outlook for European Equities as a result. However the headline economic indicators mask significant country divergence.

While overall economic growth in Europe may be relatively staid, some parts of Europe have enjoyed very strong GDP growth. Economic growth in Eastern Europe is expected at around 5.3%

The European market is growing further still with the addition of the ten accession countries to the EU.

Political risk from these countries continues to reduce while the economic environment provides a positive setting for corporate activities. The low tax and labour rates that many of these countries offer is creating opportunities in outsourcing and manufacturing with more companies moving factories towards Eastern Europe . For example, electronics company Siemens known for their mobile phones, has moved one third of its research and development to low cost countries such as the Czech Republic .

The competitive edge these countries are gaining has begun to feed through to the core

European countries Austria cut its corporate tax rates by 10% in 2004 while other core European countries are attempting to increase labour flexibility. In Germany we have seen substantial tax and labour reforms while trade unions are being far more co-operative with companies trying to increase labour flexibility and increase working hours.

Last year Linde the German engineering group like many European manufacturers decided to build a factory in Eastern Europe to take advantage of that regions lower wage costs. It then abandoned the plan when after local officials from Germany's IG metal trade union offered to match the intended 15% or so savings through a combination of both longer hours, more shifts and less pay.

While UK and US economies have been driven primarily by consumer spending, Continental Europe has received no such fillip as consumers have remained prudent, savings rates have remained relatively high and debt has remained low. However there may be signs that things are changing in Continental Europe, where consumer spending is rising which would be highly beneficial in terms of consumer spending, growth and confidence.

In 2006 corporate earnings across Europe are forecast to grow at 10% and European equities look attractively valued compared to their own valuation history, as well as other regions both in terms of price-earning multiples and dividend yield and compared to other asset classes. These low valuation metrics may not reflect fully the potential in earnings growth or the amount of restructuring that has taken place at company level in Europe . Indeed at the end of 2004 the return on equity (RoE) for European countries stood at 13.5% the same level as their global counterparts. However at the end of November the European RoE increased to 16.1% whereas global RoE rose to only 14.9%.

European companies are in a healthy position and are generating significant free cash flow. Free cash flow yields, (the cash a company has left after cash outflows for tax, interest and capital expenditure divided by market cap.) have been steadily increasing as witnessed by rising dividends and share buybacks.

European companies on average are expected to generate a free cash flow (FCF) yield above 6%for 2006 (a 20 year high and more than twice the long term average of 2.5%)

Companies use their FCF to reward their shareholders (through dividend and/or share buybacks) to undertake M&A to increase capital expenditure or to reduce debt.

As investor interest has shifted from income investing to investing for future growth, markets should continue to reward the value created by M&A deals and also capex increases. Moving forward corporate activity should remain in favour as valuations are relatively attractive in global equity markets an even more so in Europe .”

And just one quotation from Roger Guy fund manager with “Gartmore”when discussing investing in Europe .

“We anticipate that last year's positive conditions will prevail as equity valuations remain low, long term bond yields are supportive and companies are generating record cash flows”

So it appears it's not too late. If you wait another year though it may well be.

Your comments appreciated to jerry@swissinvestcenter.net

Games Review

2006 FIFA World Cup for the Xbox 360 does a good job of re-creating the carnival atmosphere that surrounds the competition, and is a significant improvement over its predecessor.

The Good: Excellent soundtrack and good commentary; fast-paced gameplay; great player animations and tv-style presentation.

The Bad: Lacks the other versions' FIFA lounge mode; poor goalkeepers.

It still lacks some of the best features from its PlayStation 2 and Xbox counterparts, but it's a much easier game to recommend than last year's FIFA 06: Road to FIFA World Cup.

The prematch presentation does a great job of setting the stage. Gameplay options include quick matches, online play, practice sessions, and penalty shoot-outs. In addition to those football game staples, you also get global challenge scenarios and, of course, a chance to guide your favorite international team through the World Cup competition. The World Cup mode will almost certainly be your first port of call, and although its default settings see you assuming control of one of the 32 teams that qualified for the finals, it's possible to play as any of around 125 different teams from all over the world. Furthermore, you have the option to take your chosen team through the relevant territory's qualification process or to jump straight to the last 32 teams using real or randomly generated group information.

The presentation throughout the World Cup mode, and throughout the entire game, is great. Before each match you'll see a camera, which is positioned somewhere in orbit around the Earth, zoom in on the appropriate German stadium, and then you'll be treated to flybys of the grounds where it looks like almost every supporter in the crowd came through the turnstiles armed with streamers, confetti, and balloons. You'll also get to listen to one of the game's many licensed songs, which come from an eclectic soundtrack spanning some 14 countries. Good pre-match commentary replete with World Cup trivia and anecdotes is the icing on the cake, and as your players line up on the pitch before kickoff, you feel both excited and nervous at the same time--exactly as you'd expect to before a real match.

Perhaps the easiest way to give you some idea of how much it has improved since last year's game would be to state that it plays more like FIFA 06 than the disappointment that was FIFA 06: Road to FIFA World Cup. It still doesn't feel quite as tight as the PS2 and Xbox games of the same name, but it's not far off, and it doesn't suffer from any of the awful slowdown issues that those two do. The Xbox 360 game plays the same fast-paced style of football that you'll find in other versions, but its ball physics are slightly less convincing, its players are less proactive off-the-ball (though you always have the option to send them on forward runs manually), and the match commentary, while very good for the most part, is more repetitive and less accurate.

With very little in the way of competition, 2006 FIFA World Cup is undoubtedly the best football game available for the Xbox 360 at this point. Since the PS2 and Xbox games suffer from obnoxious slowdown, this game doesn't feel like a poor relation alongside its namesakes, though opting for the Xbox 360 game does mean that you'll miss out on a few features and gameplay refinements. If you're in the market for a World Cup game or simply for an Xbox 360 football game that doesn't suck, 2006 FIFA World Cup is the way to go. If you can live without all of the excellent World Cup presentation and 480p HD visuals, though, then you're still better off with last year's FIFA 06 on the PS2 or Xbox.

Game Chart

Top 10 Games May 2006

1. New Super Mario Bros. [DS]

2. Need for Speed: Most Wanted [PS2]

3. WWE Smackdown Vs. Raw 2006 [PS2]

4. Halo 3 [X360]

5. Star Wars: Empire at War [PC]

6. Heroes of Might and Magic V [PC]

7. X-Men: The Official Game [PS2]

8. Grand Theft Auto: San Andreas [PS2]

9. Playboy: The Mansion [Xbox]

10. Tom Clancy's Ghost Recon:

Advanced Warfighter [PC]

Useful Telephone Numbers for Hua Hin

Railway station
032-512 770, 032-511 073

Bus station of Hua Hin
032-511 654, 032-512 543

Bus station of Prachuabkirikhan
032-601 901

Bus station of Pranburi
032-621 443

Hua Hin Hospital
032-520 401

Dog Rescue Center
0-1981 4406

Wild life Rescue Center (Tayang)
032-458 135

Department of Land Cha-am office:
032- 430 846-7

Department of Land Hua Hin office:
032-536 164, 032-512 407

Department of Land Prachuabkirikhan:
032-611 211

Department of Land Pranburi
032-622 199

Local Government (Hua Hin)
032-521 340, 532 471

Local water supply
032-511 677

The Power Board of Hua Hin
032-512 215, 032 513 165

Observer office:
032-531 078

Red Cross.
032-512 567

San Paolo Hospital
032-532 576-85

Polyclinic International
032-516 424, 032-516 425

Shell Cooking Gas
032-511 144, 032- 515 620

The Communication Authority of Thailand
(Hua Hin)
032-511 351

Rotary Club of Hua Hin
0-1916 6637
Meeting every Thursday 8.pm
at Hua Hin Grand Hotel & Plaza

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