Market report: Tuesday close

 

The FTSE 100 index suffered its biggest one-day fall in nine months as investors deserted heavyweight mining stocks and other blue-chip companies.

The widespread selling was triggered by a sudden collapse in share prices on many Asian markets, worries about a South African windfall tax and Iran.

China's Shanghai market witnessed its biggest loss in 10 years, its index falling 268.81 points or almost 9%. The shares of more than 800 companies fell by 10% - at which point trading is suspended under Shanghai Stock Exchange rules.

Hong Kong's Hang Seng index closed down 360.08 points at 20,147.87 while Tokyo's Nikkei 225 Average finished off 95.43 points at 18,119.92.

Market sources cited a number of reasons for the collapse. The most credible factors were rumours the Chinese government is to clamp down on illegal foreign investments, and renewed fears about the state of the US economy. Former Federal Reserve chairman Alan Greenspan stoked the latter by telling a conference in Hong Kong that recession in the US was a possibility later this year.

Traders also said the increasingly antagonistic posturing between the US and Iran was giving real cause for concern, with investors fearing the impact that another protracted conflict would have on oil prices and the global economy.

In London, the FTSE 100 slid 148.6 points to 6286.1, a fall of 2.3%. The losses were mirrored on all the other major European bourses while in the US the Dow was 125.90 points lower at 6284.6.

Antofagasta was the worst-hit Footsie member, falling 28p to 473½p, a drop of around 6%. The other seven blue-chip miners saw their share prices slide by at least 5%. As well as the Chinese collapse, analysts pointed to reports in South Africa that suggested the government wants to impose a windfall tax on the liquid fuels industry.

This would mostly affect Anglo American, down 123p at 2507p, and BHP Billiton, 69p lower at 1051p. The rout saw Anglo American alone losing £1.95bn. FTSE 100 companies saw their market cap drop by a collective £40bn.

Analysts were trying to point out any glimpse of a silver lining, with several observing that many of the Asian markets were well due a correction. The Chinese Composite index has risen 130% in the past year. Martin Slaney, head of spread betting at GFT Global markets, said today's setback may well turn out to be nothing more than a short-term knee-jerk reaction to the China sell-off.'

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The pressure to sell saw every Footsie company bar one suffer falls. Reuters, 6p ahead at 432p, survived the carnage, mainly thanks to a chunky upgrade from Credit Suisse which now rates the shares outperform with a target of 480p. The media group is expected to turn in strong results on Thursday.

Even the promise of a £3-a-share cash return was not enough to lift Cairn Energy, which slipped 43p to 1587p despite announcing it would be returningto shareholders £481m of the money made floating its Indian business.

Cairn still owns 69.5% of Cairn India, which was floated in Mumbai (Bombay) in January. The cash handout will help make up for a disappointing reaction to the flotation. Cairn shares have fallen from a high this year of 1810p, and their all-time high was 2508p.

Analysts at Citigroup offered a new take on the Sainsbury's saga, suggesting Asda could mount a bid for the supermarkets group if the consortium led by CVC launches a takeover attempt. It reckons the number two player could successfully exploit the Competition Commission's concerns about an increasingly dominant Tesco.

It also thinks a consortium bid is unlikely to emerge, and is repeating its sell rating and 400p target. Sainsbury's was 9p lower at 517¼p while Tesco slipped 5¾p to 442¼p.

TAKING STOCK: Sectors at a glance

Banking & finance
Old Mutual may have looked OK on the surface, but Collins Stewart is advising clients to switch - calling it the worst performer in the UK life sector, and calculating that it is dragging behind its peers by an average 15%. The broker thinks it will take several years before the insurer's Skandia acquisition is obviously value-creative.

Building & property
Property developer Land Securities has sold Devonshire House in Mayfair to London-based DCD and New York's The Witkoff Group for £280m. The deal follows the collapse of a proposed sale of the iconic Green Park building comprising offices, shops and showrooms to the Abu Dhabi royal family last year.

Consumer
Associated British Foods saw its shares race ahead on the back of yesterday's profit figures, but analysts were less excitable. Shore Capital is keeping the group at hold. It has been reassured on its sugar business but is watching developments at Primark with interest. The fast rate at which new space is arriving bodes well.

Engineering
Industrial valves maker Rotork is expected to reveal a 20% increase in profits when it reports full-year results tomorrow, with a similar jump in sales. Broker Arbuthnot is forecastingRotork will post an increase in business in the Middle East as well as strong demand from the hydrocarbon and power sectors.

Health
JPMorgan has lowered its price target for drugs firm Shire to 1250p from 1300p to reflect lower guidance on 2007 figures. However, it reckons the group's 'long-term growth story is intact' and suggests the $2.6bn (£1.34bn) New River Pharmaceuticals acquisition could improve operating margins by about 5%.

Industrials
Rolls-Royce has lost out to General Electric in a deal to supply engines for Qantas' new fleet of up to 115 Boeing 787s. The Australian airline said it had selected the GEnx engine for its 'superior performance and environmental impact'. It added that it had placed an initial order for 45 aircraft sets, valued at $1.6bn (£816m).

Leisure
Ladbrokes looks to be full-price at the moment but broker Citigroup thinks the shares could advance further if the bookie buys web-gaming site 888 Holdings. It has raised its target from 405p to 440p, a 10% premium, to reflect this and other potential upsides, including private equity interest and international growth opportunities.

Media
Reuters is facing a crucial results announcement on Thursday, with investors nervous about the impact currency exchange will have on recent and future trading. Numis, which rates Reuters an add, expects currency fluctuations to bring growth down from 5% to 3%, and it is calling the media group a '2008 story'.

Natural resources
It's time to take another look at Peter Hambro Mining, says broker Numis Securities, which is upping its recommendation from hold to buy following a meeting with management yesterday. It highlights increased production plans which add up to 1.1m ounces of gold in 2009, and has set a target of 1551p.

Retailing
Evolution Securities suspects current trading at Debenhams has picked up, with the smaller Desire stores doing better than expected. Despite recent share-buying by directors and talk of stakebuilding by Iceland's Baugur and American value investor Brandes, it is repeating its reduce rating with a target price of 160p.

Support services
Distribution and outsourcing group Bunzl remains seriously undervalued, says Panmure Gordon, which has a target price of 800p. The broker reckons the current price of 674p rates the shares at 15.5 times future earnings - pretty cheap for a company with solid long-term prospects and high returns on capital.

Technology
Filtrona is expected to impress on Thursday, with consensus estimates putting profits at about £56m, up 7%. However, investors should not get carried away. Evolution Securities reckons its FractureCode business has not attracted any new customers since December, which will bring its current price into question.

Telecoms
BT and BSkyB face ever-more competition in the quadplay arena with Orange reported to be launching a broadband television service in the UK later this year. Analysts reckon Orange's strong marketing message together with parent France Telecom's TV expertise should make it a formidable rival.

Transport
Expect Gatwick Express owner National Express to stop talking about coaches for a moment on when it unveils its results on Thursday to big up the fact the airport train franchise has been named a 'superbrand'. It also beat the other train operating companies in a national passenger survey.

Utilities
Shareholders in Scottish Power should today receive details of the scheme of arrangement relating to the recommended offer for the company from Spain's Iberdrola. Based on Iberdrola's closing price on 22 February, the takeover values their shares at 795.6p, a 2% premium to Scottish Power's closing price on that day.