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Market report - Monday 19 January update
There are still pockets of interest for stock-market investors, despite the gloom surrounding the banking sector at present.
Renewed bid hopes boosted shares of bombed-out mining giant Rio Tinto amid whispers that one of its biggest shareholders may take advantage of the recent collapse in the share price to snap up the rest of the company.
The shares rose 29p to 1536p, but remain well below the record 7078p struck following last year's bid approach from big rival BHP Billiton.
It was during this period that state-owned Aluminium Corporation of China (Chinalco) paid more than £7 billion to acquire a 12% stake. That is the equivalent of 6000p a share. But Rio has since gone into freefall following BHP Billiton's decision to walk away from making a bid, and the slump in raw-material prices that has reflected a slowdown in China's economy.
Chinalco is estimated to be sitting on a paper loss of £5.3 billion relating to its initial investment. The speculation intensified after Chinalco reported a 50% drop in profits last year because of low aluminium and copper prices.
National Express accelerated 2¼p to 422p on talk of a break-up bid. Spanish non-executive director Jorge Cosmen has been adding to his holding recently following the departure of chairman David Ross last month. Earlier this month, he bought 190,000 shares at 503½p, worth an estimated £956,000. That stretches Cosmen's holding to almost 30 million shares, or 19% of the bus-and-train operator.
Shares were generally marked higher in thin trading, but failed to hold their best levels. The FTSE 100 index saw its lead more than halved by 41.8 at 4105.2. Wall Street is closed for Martin Luther King Day ahead of the inauguration of President-elect Barack Obama.
It was inevitable early attention would focus on the banks and Government attempts to launch a second multi-billion-pound rescue package designed to free up much-needed funds. But anyone pinning their hopes on a dramatic change of fortune in their badly deflated share prices was quickly disillusioned. Most banking analysts see the Government's latest move as “high-risk” at best. And who wants to buy shares in a company likely to be nationalised?
Royal Bank of Scotland slumped 18.7p, or 49%, to a new record low of 16p on turnover of 300 million shares, with the Government set to increase its stake from 58% to 70%. The ban on short selling came off on Friday, leaving the likes of RBS vulnerable to bears.
It was the first day of trading for the newly merged HBOS and Lloyds TSB. Lloyds Banking Group touched 105.7p before slamming into reverse with a loss of 34.7p to 63.7p as more than 70 million shares changed hands. HBOS shareholders received 0.605 of a share in the enlarged company for every share they originally held.
Even Barclays saw its rally run out of steam. The shares suffered a big sell-off late on Friday. In early trading today they touched 123p, before rattling all the way back to trade 7p lower at 91p as more than 170 million shares changed hands. The bank, which has remained outside the “golden circle” that accepted Treasury funding, argues it will report pre-tax profits of at least £5 billion. Speculators remain convinced it will have to seek further funds. In the past, it has turned to Middle and Far East sovereign wealth funds.
Even the once-mighty HSBC, which sparked off the credit crunch with big write-offs back in February 2007, came under selling pressure. The price dropped 68¾p to 467p after institutional investors began selling stock on Friday, amid claims the bank may have to turn to shareholders in order to seek fresh funding at around the
300p level.
Last week, Morgan Stanley warned HSBC needed to raise up to £20 billion. Goldman Sachs has also warned of further weakness in the shares.
Centrica stood out with a rise of 11¼p at 274¼p after Société Générale raised its rating from sell to hold and its target from 235p to 264p.
