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FTSE in-depth: Boom times are back, says guru

By Geoff Foster for MailOnline
Updated: 03:43 EDT, 2 December 2010

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Mad-keen Manchester United fan Jim O'Neill, considered by many City folk to be the more acceptable face of US broking giant Goldman Sachs, certainly put a smile back on dealers' faces.

Market watcher: Will shares recover ground lost this week?

Speaking to the CFA Society in London, the former chief economist and forex guru, who now chairs Goldmans' £528bn asset management division, declared that we have now entered a new bull market in global equities.

O'Neill, famed for coining the BRICs - Brazil, Russia, India and China - acronym a decade ago, said that the combined gross domestic products of these countries would be as big as the US in the coming decade.

He said he was 'relatively optimistic' about the UK economy, adding that the Office for Budget Responsibility, which on Tuesday forecast GDP growth of 2.1% for 2011, was 'still catching up with reality'. He expects the OBR will next time have to revise its forecasts upwards again.

O'Neill also believes that Germany is not far off boom conditions, a fact that has gone relatively un-noticed. The German consumer has suddenly started to believe in the future and that surely must be bullish for markets.

O'Neill's warm comments, along with faster-than-forecast growth in private US jobs and Chinese manufacturing, helped the Footsie bounce back strongly with a gain of 114.23 points to 5,642.5 and the FTSE 250 rally 201.58 points to 10,809.33.

Part-nationalised UK banks led the recovery amid hopes that the worst of the eurozone debt crisis could possibly now be over. Royal Bank of Scotland put on 2.29p to 39.88p and Lloyds Banking Group 3.64p to 64.05p.

Barclays gained 11.85p to 268p, shrugging off news that Barclays Capital, its investment banking arm, is on the verge of slashing hundreds of jobs over the next couple of months. Strong factory data from China, one of the world's top metals consumers, prompted heavy buying of miners. Xstrata advanced 75p to 1367p and Kazakhmys 74p to 1460p. Rio Tinto added 127.5p at 4207p.

British Gas and power prices may be rising on the back of increased demand for heating during the cold snap, but defensive utilities were friendless. National Grid blew a fuse at 552.5p, down 15.5p, while Severn Trent dipped 36p to 1410p and United Utilities 7p to 589.5p.

After Goldman Sachs reiterated its Conviction Sell recommendation, defence stock BAE Systems cheapened 3.2p to 327.1p. The broker pointed out that recent news flow from the US defence market, which represents 50% of sales for all the UK defence stocks it follows, has been a lot worse than it had expected.

Trade exhibition and conference organiser ITE Group jumped 20.9p to 208p following better-than-expected annual results. Numis upgraded its 2011 pre-tax profit forecasts to £43m from £41m, and lifted its target price to 228p.

Continuing to respond to a Bank of America/Merrill Lynch note and vague takeover talk, banknote printer De La Rue rose 59p further to 637p.

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Software firm Micro Focus put on 28p to 359.4p after broker Jefferies International upgraded to hold from underperform on valuation grounds. Interim results are due on Wednesday.

Department store Debenhams firmed 0.95p to 71.45p. Analysts gave the thumbs up after attending its annual preview for spring/summer ranges on Tuesday. Analyst Matthew McEachran at Singer Capital Markets said he views the continuing enhancements to ranges, especially to its Designers at Debenhams diffusion line, as positive for the future.

On the other side of the street, WH Smith improved 7.9p to 480.4p after Shore Capital initiated coverage with a buy recommendation and target price of 540p. The broker reckons the current valuation does not reflect the true value of its businesses; High Street has a stable earnings profile, while outlets in airports are increasingly becoming the engine for growth.

Gulf Keystone put on 2.25p to 180p after beginning drilling operations on its Shaikan-2 appraisal well in Kurdistan. It is the first deep appraisal well to be drilled and GK has a 75pc working interest in the block.

Hungry bears continued to bite large chunks out of UK online betting exchange Betfair. The shares were sold down to 1185p before closing £1 down at 1200p, to stand almost 8pc below its flotation price. Broker Investec recently advised clients to sell down to 445p as it believes the company faces increased competition and a complex regulatory environment.

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