London’s blue-chips marked time yesterday, but there was evidence that investors returning after the holidays were backing an economic recovery. Good volume – 3.5 billion shares changed hands -further gains for the less-defensively weighted mid-cap FTSE 250 and a leader board populated with cyclical stocks all pointed to a market gearing up for an economic rebound.
The FTSE 100 closed flat at 4,204.4, while the FTSE 250 added 0.7 per cent at 5,687.3.
Insurer Royal & Sun Alliance added 3.8 per cent at 149-1/2p in heavy volume of 60 million shares, amid further rumours of an impending rights issue of up to (pounds) 1 billion with its half- year results tomorrow. Reports the rights issue is in part to bolster US reserves led some to suggest RSA may exit its US business, but no imminent deal was anticipated. Deutsche Bank said the removal of uncertainty following a cash call could justify a less negative stance on the insurer, and perhaps alter its “sell” rating.
Traders said short-covering by hedge funds was an important factor behind RSA’s advance this week. Selling by hedge funds was believed to be behind the August slide from 160p highs, which was being reversed as the potential rights issue neared.
Another commentator added: “People want … quality operationally leveraged cyclicals and if possible financial leverage as well. Nobody is looking at things from a fundamental point of view. ABB, [the Swiss-Swedish engineering group] rose 10 per cent on the day it had a rights issue.” A further theory suggested the rights issue would be discounted heavily, and some investors would want to get on board before Thursday to ensure access to the cheap stock.
Life insurer Britannic Group rose 8.6 per cent to 302-1/2p as interim profits fell by less than expected. Larger peer Prudential gained 2 per cent at 467p, helped by positive broker comments.
On the cyclical theme, Meggitt, the aerospace engineering group, was a prominent mid-cap gainer with a rise of 8.7 per cent to 238p after results showed a better-than-expected rise in first-half profits. Dealers attributed the 3.1 per cent gain by BAE Systems to 181p and the 1.6 per cent advance to 179-3/4p at Rolls-Royce in part to optimism following Meggitt’s results.
Paddy Power fell 3.9 per cent to 434p after results that showed half-year pre-tax profits fell by 21.9 per cent.
Ireland’s largest bookmaker also said that Goodbody Stockbrokers had placed 5.6 million shares with institutional investors in Ireland and the UK at E6.06 ((pounds) 4.20) per share.
