London close: Stocks bounce back in afternoon trade
By Josh White
Date: Tuesday 28 Jan 2020
(Sharecast News) - London stocks had bounced back into the green by the close on Tuesday, even as concern about the spread of the Wuhan coronavirus continued to top the bulletins.
The FTSE 100 ended the session up 0.93% at 7,480.69, and the FTSE 250 was 0.61% firmer at 21,433.06.
Sterling was weaker against both of its major pairs, last falling 0.49% against the dollar to $1.2993 and losing 0.42% on the euro to €1.1801.
With more than 4,500 confirmed cases of the virus and the death toll rising to 106 over the past week, the potential global impact of the outbreak was keeping investors on edge.
"The numbers are getting uglier by the day, even as extensive efforts are made to contain the virus in China," said Oanda analyst Craig Erlam.
"At this stage, it's still extremely difficult to say just how bad it's going to get which makes anticipating the market reaction all the more challenging."
Erlam said stocks had already taken a beating, particularly those most exposed to the Chinese economy which he believed would suffer as a result of the outbreak.
"And the worst is unlikely to be behind them, even as they squeeze out small gains in early trade today.
"This is more a reflection of the pain suffered on Monday, than anything else."
During the afternoon, however, China's president Xi Jinping pledged to beat the "devil" coronavirus.
At a meeting with the head of the World Health Organization in Beijing, Xi said: "The epidemic is a devil. We cannot let the devil hide."
According to state media, Xi said information about the virus would be shared "transparently, responsibly and in a timely way" after comments from the mayor of Wuhan about slow disclosure.
"We have complete confidence and ability to win this defensive battle against the epidemic," Xi said.
As far as the impact on China's economic growth is concerned, Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said the country's true real GDP could be flat or even fall quarter-on-quarter in the first quarter due to efforts to contain the spread of the coronavirus, shutdowns and fearful consumers.
"The bottom line here is that China could even see a contraction in quarterly real GDP growth in the first quarter, in reality, depending on the timing of factory closures and how long it takes to contain the virus," she said.
"We are assuming that missed spending will be recouped in the second quarter, leading to a bumper quarter, though it's very possible that some of the expenditure on services around the holiday simply will be lost."
That, Beamish said, meant the overall economy might not bounce back in the same way as after the SARS outbreak in 2003.
"In short, you can make up for factory shutdowns by increasing over time, but making up spending for a lost holiday is more complicated.
"And the containment measures could go on for longer than in our baseline assumption."
In equity markets, InterContinental Hotels was on the front foot, rising 1.51% to recover from heavy losses a day earlier on worries about the impact of the coronavirus.
Citi said in a research note on European hotels that IHG has the greatest exposure to China, with French hotel chain Accor less exposed.
"We highlight IHG's 14% drop in managed and franchised Asia-Pacific revenues post SARS in 2003.
"Any impact on trading may be amplified given the timing of Chinese New Year, and already weak Hong Kong trading," it said.
Irn-Bru maker AG Barr was a standout performer on the FTSE 250, surging 15.86% as it said full-year adjusted profit before tax was expected to be at the top end of current market expectations, "just ahead" of £37m.
Revenue for the period was expected to be around £255m, down from £279m a year earlier.
Crest Nicholson was in the green by 7.36% even as the housebuilder said that pre-tax profits slumped last year, with the group missing even its own revised forecasts.
In the year to 31 October, pre-tax profits tumbled 39% to £102.7m, falling short of the guidance of £120-130m it issued following last October's profit warning.
Virgin Money was also higher, moving ahead 4.26% after it said that first-quarter deposits and business lending grew, while its mortgage book fell in a tough market.
BAE Systems clawed back above the waterline to close up 0.03%, after an upgrade to 'overweight' from 'equalweight' at Barclays, following two core acquisitions earlier in January.
Analyst Charlotte Keyworth said the deals "suggest opportunism, favourable timing and, importantly, that the new management team are allocating capital to address the main drivers of the long-standing valuation discount to US primes".
On the downside, distilling giant Diageo was knocked 1.44% lower by a downgrade to 'underweight' at JPMorgan.
Avast was also under the cosh over on the FTSE 250, sliding 7.83% after Peel Hunt initiated coverage at 'sell' with a 405p price target, arguing that despite the company's strengths, the shares are "overvalued" at the current price.
The broker noted that Avast is a versatile cybersecurity company whose software is on about 35% of PCs worldwide, outside of China.
"Its scale has given it a solid moat and exceptional margins. It also has a steady and growing revenue streams," it said.
However, it said that in the long run, Avast is existential threats, pointing to Microsoft's native cybersecurity, which is now proving to be a serious challenger and said there may not be room for Avast in a world moving towards cloud-based services.
Market Movers
FTSE 100 (UKX) 7,480.69 0.93%
FTSE 250 (MCX) 21,433.06 0.61%
techMARK (TASX) 4,232.44 0.96%
FTSE 100 - Risers
InterContinental Hotels Group (IHG) 4,709.50p 3.05%
St James's Place (STJ) 1,130.50p 2.96%
Hargreaves Lansdown (HL.) 1,851.50p 2.92%
Glencore (GLEN) 227.60p 2.80%
Whitbread (WTB) 4,350.00p 2.62%
Antofagasta (ANTO) 859.20p 2.60%
Experian (EXPN) 2,705.00p 2.31%
Rolls-Royce Holdings (RR.) 651.00p 2.26%
Phoenix Group Holdings (PHNX) 760.80p 2.26%
Prudential (PRU) 1,376.00p 2.23%
FTSE 100 - Fallers
Diageo (DGE) 3,146.50p -1.44%
Centrica (CNA) 88.34p -0.79%
Polymetal International (POLY) 1,261.00p -0.63%
Halma (HLMA) 2,132.00p -0.61%
TUI AG Reg Shs (DI) (TUI) 815.80p -0.58%
London Stock Exchange Group (LSE) 7,742.00p -0.33%
Bunzl (BNZL) 2,005.00p -0.25%
DCC (DCC) 6,284.00p -0.16%
Rightmove (RMV) 665.20p -0.12%
Royal Bank of Scotland Group (RBS) 217.90p -0.09%
FTSE 250 - Risers
Barr (A.G.) (BAG) 627.00p 15.26%
Crest Nicholson Holdings (CRST) 472.60p 7.36%
Finablr (FIN) 96.25p 6.59%
Tullow Oil (TLW) 53.00p 4.95%
Just Group (JUST) 75.55p 4.93%
Galliford Try (GFRD) 137.30p 4.70%
Virgin Money UK (VMUK) 172.50p 4.26%
AJ Bell (AJB) 400.50p 3.35%
Micro Focus International (MCRO) 1,094.20p 3.23%
OneSavings Bank (OSB) 429.80p 3.17%
FTSE 250 - Fallers
Avast (AVST) 481.80p -9.01%
Fresnillo (FRES) 613.00p -3.95%
Euromoney Institutional Investor (ERM) 1,290.00p -3.59%
Helios Towers (HTWS) 146.50p -2.98%
Apax Global Alpha Limited (APAX) 163.50p -2.97%
PPHE Hotel Group Ltd (PPH) 1,980.00p -2.94%
IP Group (IPO) 70.50p -2.89%
GCP Infrastructure Investments Ltd (GCP) 128.00p -2.88%
NextEnergy Solar Fund Limited Red (NESF) 118.00p -2.88%
Fisher (James) & Sons (FSJ) 1,930.00p -2.53%
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