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Wednesday November 12 - afternoon update
Dresdner Kleinwort is the latest among a growing number of brokers that has begun urging clients to start looking to buy the stock market.
It has raised its rating on the equity market from underweight to neutral, and insists it is not attempting to catch a falling knife.
Respected equity strategist Philip Isherwood, who called the top of the corporate takeover market back in summer 2007, says: “We are buying the luxury of being able to wait, and the ability to stay patient. There comes a time when everyone is bearish, when bad news can't shock and markets decouple from the data flow and start to look forward again.”
That's the point investors are seeking, but has it really been reached yet? Isherwood points to a 40% decline and “record low” valuations, which make the recent rally look for real. “But, in fact, it is the sixth rally since the June 2007 peak — and all have been based on the idea that the bad news is known, the market is cheap and the economic outlook is discounted. We have not yet reached the point where bad news does not shock the market,” he says.
But despite adopting a stiff upper lip, stock market investors were eventually beaten back by a steady trickle of bad news linked to the economy. A big jump in the number of jobless and some gloomy comments on deflation by Bank of England Governor Mervyn King eventually took a toll on sentiment.
The FTSE 100 index touched 4333.3 before slamming into reverse with a fall of 46.7 points to 4199.9. A welter of ex-dividends among blue-chip stocks, was the equivalent of a 7.5-point fall in the index. This afternoon on Wall Street share prices extended yesterday's losses amid worries about the US economy and the future of General Motors. The Dow fell 189.01 to 8504.95.
Hedge funds have been a big casualty of the downturn as they battle falling share values and a growing number of margin calls and redemptions. Funds like Toscafund have lost more than 60% of their value this year. The UK's biggest hedge fund operator, Man Group, fell a further 38p today to 210p, making it the biggest blue-chip casualty. Citigroup has downgraded Man from buy to hold and slashed its target from 570p to 265p. It says there is little prospect of a recovery short term.
Marks & Spencer started the year at 648p, but today retreated 12¾p to 242½p after gloomy retail forecasts for the run-up to Christmas. US fund manager Capital World Investors has been trickling out stock in recent months. This time it has sold 2.61 million shares, cutting its holding to 78.5 million, or less than 5% of the company.
Interim results from J Sainsbury, up 10½p at 282¾p, were in line but not exceptional. A profits warning from Eurasian Natural Resources left its shares nursing a loss of 38¾p at 244¼p, while a drop of 54% in profits at Scottish and Southern Energy was shrugged off with the price advancing 66p to 1210p. Welsh water and waste operator Pennon fell 36p to 534½p after Goldman Sachs dropped its rating from neutral to sell and trimmed its target from 562p to 543p. It blames the waste side of the business, Viridor, for the move. Viridor sells about two million tonnes of recycled paper a year, but prices have fallen sharply of late.
AIM-listed Cohort firmed 2½p to 161p. The independent technology group has been awarded a handful of contracts to the value of £5.4 million by the Ministry of Defence, the French defence ministry, the Japanese government and Network Rail.
Industrial materials supplier Cookson continued to reel from yesterday's profits warning, with the price losing 4p at 126p. The group no longer expected to meet full-year targets following cuts to steel production by its clients.
Dresdner Kleinwort rates the shares a hold but has slashed its target from 650p to 150p.
Citigroup continues to rate the shares a buy but has dropped its target from 615p to 275p.
