Barclays leads Footsie rally as banks return to favour

Mickey Clark
16 Apr 2009

Cash-strapped Barclays climbed back above the 200p level today for the first time since last October with a rise of 7.95p to 204.75p, making it one of the best performers among the FTSE100.

Its decision to stay out of the Government's asset protection scheme appears to be winning it fans. However, it has a long way to go to appease long-suffering shareholders who remember when their shares were changing hands at a peak of 760p two years ago.

The banks generally bounced back after yesterday's shake-out which was prompted by news of big losses and a further shedding of jobs at Swiss banking group UBS. In fact, bank shares accounted for four of the best six blue-chip performers as the appetite for risk among some investors continued to improve. Government-owned Royal Bank of Scotland firmed a penny to 28.7p. It was the heaviest traded stock in London yesterday with almost 300 million shares changing hands. Lloyds Banking Group also put on 4.4p at 88.5p, while HSBC added 4½p at 481p.

Shares generally took their lead from Wall Street's positive performance overnight. The FTSE 100 index sported a modest rise of 9.31 at 3977.71, although turnover levels remained on the low side with some investors clearly uncertain as to whether the recent rally, which has seen leading shares rise 12% during the past month, can be sustained.

Financials were also dragged higher in the wake of the banks with Legal & General adding 1.1p to 51.1p and Prudential putting on 7p at 369¾p. Old Mutual firmed 0.4p to 63.2p despite UBS downgrading its rating from buy to neutral, claiming the shares had "run a little too hard" of late. Insurance shares have generally enjoyed something of a recovery along with the rest of the market in recent weeks, but Old Mut has outperformed its rivals by 75% during the past six weeks alone.

JPMorgan has downgraded the luxury goods retailer Burberry from overweight to neutral and dropped its target from 350p to 335p, blaming a less attractive risk-reward ratio with the shares now trading on almost 12 times earnings for 2010. That is a 5% discount to the luxury goods sector and a 20% discount on the historic average. Burberry will report second-half sales next week and the bank is looking for underlying sales growth of 1%, implying a deterioration in the fourth quarter of minus 6% compared with a strong third quarter of plus 9%.

Asian shares had modest gains. In Tokyo, earlier rises were pared back by data showing China's economy grew 6.1% in the first quarter from a year ago, its slowest quarterly growth since the Seventies.

Shares seen as influenced by demand from China, such as Nippon Steel Corporation, the world's second-biggest steelmaker, pared market gains. Shippers and carmakers also lost ground.

The Nikkei 225 closed 12.30 up at 8755.26. Santen Pharmaceutical rose 10% to 2,885 yen after agreeing to license its glaucoma and ocular hypertension drug tafluprost to its US rival Merck, in a bid to boost global sales of one of Santen's key products.

In Hong Kong, shares rose on expectations that China would be spurred into announcing new support measures after its economy slowed to its weakest pace on record in the first quarter.

Some Chinese counters, which have been big winners in the recent three-day rally, fell, after small losses in Shanghai. "China's GDP numbers can't harm the market rally too much; first because they are more or less in line with expectations and second, because there is a positive spin to it where investors think that data will prompt China to come out with fresh stimulus measures," said Linus Yip at First Shanghai Securities.

Speculation has been rife in recent days that Beijing might announce a new spending package focused on boosting consumption to follow up the 4 trillion yuan (£389.9 billion), two-year stimulus plan it announced last November.

The Hang Seng index put on 23.94 points to 15,693.56, having touched a low for the day of 15,521.31.