Bears feel the squeeze as positive view holds sway

Mickey Clark
13 Mar 2009

The decision of stock-market investors to take a more upbeat view of prospects this week appears to have met with some success.

Shares made further progress today, and looked set to finish the week on a positive note. The FTSE 100 index climbed 62.64 to 3774.7, stretching its five-day gain to 243 points, or almost 7%.

The bears were again feeling the squeeze after shares took their lead from another robust performance on Wall Street overnight that carried the Dow back above 7000 and spilled over into Asia this morning.

The Cheltenham Festival continued to take a toll on turnover but, after a depressing few weeks, most investors have been happy to accept any pleasant distractions that come their way.

Recent US economic news has offered hope that the worst of the recession may be over. Wall Street extended its gains this afternoon, cheered by a narrowing of the American trade deficit. The Dow Jones rose 8.04 to 7178.10.

Financials made much of the running. Barclays led the way with a jump of 7.4p to 79.3p as more than 70 million shares changed hands.

The bank has been boosted by news from JPMorgan Chase yesterday that indicated the first two months of 2009 had been profitable, as it was boosted by the assets it bought from the now-defunct Lehman Brothers.

Barclays bought Lehman's US investment arm earlier this year, and it is expected to make a valuable contribution to profits.

Meanwhile, Barclays has until the end of the month to decide whether to join the Government's asset protection programme. HSBC rallied 21p to 407p after going ex its £12.5 billion rights issue in Hong Kong.

The bears were covering their shorts in Land Securities following the group's heavily discounted £756 million rights issue.

That jacked up the ordinary shares 36p to 377p, which propelled the nil-paid 36¾p higher to 89¼p. This was despite Goldman Sachs slashing its target price for the fully paid from 671p to 572p.

UBS continues to rate LandSecs a buy but has slashed its target from 850p to 380p. It says the dividend and earnings remain attractive, but it assumes the group will follow a relatively passive business model.

The politicians hope that by pumping trillions into the global economy they can shorten the recessionary cycle. But not everyone in the City is convinced.

Morgan Stanley is gloomily forecasting another big drop in underlying revenues this year and next at the world's largest advertising agency WPP, often seen as a barometer of the global economy.

It is braced for a decline of 7% in revenues at WPP this year followed by a fall of almost 5% in 2010 — implying a deep and prolonged global recession.

The broker says: "We think the market underestimates the pressure on revenues for the European agencies into 2010 as they face unprecedented headwinds".

Morgan Stanley repeated its underweight rating on WPP, which includes the JWT agency, while cutting its target for the shares from 354p to 310p. They fell 12¼p to 392¼p.

Credit Suisse has become cautious of the oil sector. It has cut Royal Dutch Shell, 25p better at 1573p, from 1600p to 1420p, and BG, 43½p dearer at 1025p, from 1100p to 1075p while trimming BP, up 7p at 454¾p, by 5p to 445p.

By contrast, Collins Stewart rates Royal Dutch Shell a buy with a 2150p target.

It says the oil giant has one of the safest dividends in the sector and should enjoy a period of good production growth.

JD Wetherspoon rose 43¾p to 385p on the back of better-than-expected first-half numbers. Numis Securities has raised its rating from hold to add.

Investec continues to make the shares a hold but is reviewing its 321p target.

That drop of cheer spilled over to the other pub-chain operators, which have this year had all the appeal of a flat pint. Enterprise Inns gained 4¼p to 49¾p with Punch Taverns firming 1.5p to 37p and Mitchells & Butlers putting on 10p at 228¾p.