FTSE 100: third week of gains

The Pak Banker - - MARKETS/SPORTS -

Was that it? The year be­gan with warn­ings to sell up and hun­ker down for an­other fi­nan­cial cri­sis. But now in­vestors have been left scratch­ing their heads af­ter the FTSE 100 en­joyed its third week of gains to soar back to where it started 2016.

The in­dex ral­lied 1% on Fri­day to close at 6,199.43, just shy of the 6,242.32 level at which it opened the year and above the 6,093 where it closed on the first trad­ing day of the year.

It marks a 12% turn­around from a three-year low hit in Fe­bru­ary as the Lon­don blue-chip in­dex slumped along with stock mar­kets around the world. In­vestors had dumped shares amid a com­modi­ties rout and on wor­ries about the global eco­nomic out­look and China's econ­omy in par­tic­u­lar. As the sell-off deep­ened, econ­o­mists at the Royal Bank of Scot­land warned clients: "Sell ev­ery­thing ex­cept high qual­ity bonds."

Now the FTSE 100 is ral­ly­ing again, stock mar­ket ex­perts warn it still has some choppy months ahead. But at the same time a mood of cau­tious op­ti­mism is spread­ing in the City.

"It's not to say we are out of the woods but things are look­ing a bit bet­ter than they were at the be­gin­ning of Fe­bru­ary when the bot­tom was fall­ing out of the mar­ket," said Michael Hew­son, chief mar­ket an­a­lyst at fi­nan­cial spread­bet­ting firm CMC Mar­kets UK.

The for­tunes of min­ers in par­tic­u­lar, a hefty chunk of the FTSE 100, have turned around in re­cent weeks. Ral­ly­ing me­tals prices have helped boost the share prices of com­pa­nies such as Glen­core, BHP Bil­li­ton and An­glo Amer­i­can.

But there were still signs that in­vestors re­main jit­tery, no­tably the soar­ing price of gold, long seen as a safe-haven, added Hew­son. The pre­cious metal is up al­most 20% since the start of the year.

"You have to be choosy about where you put your money," he said. "I am cau­tious about this [stock mar­ket] rally. Gold prices have ral­lied along­side it and that could mean in­vestors don't trust this rally." An­a­lysts say a com­bi­na­tion of fac­tors­got stocks off to a bad start in 2016: signs of in­dus­trial sec­tor weak­ness in the US, China's slow­down and its cur­rency de­val­u­a­tion, sharp falls in the oil price and other com­modi­ties, and ex­pec­ta­tions that the US Fed­eral Re­serve would raise in­ter­est rates four times this year. Bank and com­mod­ity stocks were among the hard­est hit.

Against that back­drop the FTSE 100 suf­fered its worst open­ing week to a year since 2000 and con­tin­ued to tum­ble un­til 11 Fe­bru­ary.

Since then, nerves have been calmed by three fac­tors, ac­cord­ing to Nick Nelson, head of Euro­pean equity strat­egy at Swiss bank UBS. Firstly, slightly brighter eco­nomic news out of China and the US; se­condly, a pick-up in en­ergy and min­ing stocks; and fi­nally, a weaker pound, which helps the FTSE 100's many ex­porters.

Nelson warned that fi­nan­cial mar­kets will re­main jit­tery given the wounds of the last crash are still raw. "We all an­chor to our most re­cent ex­pe­ri­ences and if you have been in in­vest­ment and mar­kets for 10 years or so, what you will re­mem­ber is 2008-9," he said. Laith Kha­laf, se­nior an­a­lyst at fi­nan­cial firm Har­g­reaves Lans­down, echoed that.

"There is a sense that ev­ery­one is per­haps poised for the mu­sic to stop and they don't want to be left with­out a chair. That ex­plains the stop-start na­ture of the run we have had," says Kha­laf.

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