Footsie surges ahead as good news adds to signs of a global recovery

Mickey Clark
14 Oct 2009

The London stock market bounced back from yesterday's sell-off and were changing hands at a new high for the year amid signs that the global recovery has accelerated.

City investors took comfort from third-quarter profit numbers overnight from the world's biggest microchip maker Intel. That was backed up by better than expected profit news from JP Morgan today. Dealers conclude the global economy is recovering.

Henk Potts at Barclays Wealth chortled: “Companies are beating consensus, there's a high level of liquidity in the equity markets and the macro economic picture is improving”.

The growing confidence among investors was also underpinned by a smaller than expected rise in unemployment in the three months to August which saw just 88,000 people lose their jobs.

The FTSE 100 index responded with a rise of 102.06, or almost 2%, to 5256.21 — its highest since 19 September last year. The index has now risen 1795 points, or 52% from its low point in March.

Once again the charge was led by the miners who contributed more than

30 points to the rise in the benchmark Footsie 100 Index. Citigroup also had some positive words on the sector, while Morgan Stanley was again pushing Vedanta Resources, up 112p at 2330p, and Kazakhmys, 89p better at 1267p, as its top picks. The broker says that with Vedanta's stock trading at its current capacity value, the market prices in almost “no value” for growth and cost reductions. It confirmed that growth plans over the next couple of years and further operational improvements could lead the shares to more than double without material changes to spot commodity prices. Kazakhmys is one of the cheapest stocks in the sector and can be used as a leveraged play on copper.

Troubled times ahead for British Land (BL) steady on 473p, after main board director and head of retail Andrew Jones and two of his top executives left to set up their own property venture, as exclusively revealed in the Evening Standard. That is according to broker Cazenove, which has downgraded its recommendation on the property giant's shares from in-line to underperform. The broker says the departure of Jones, along with Valentine Beresford and Mark Stirling, has highlighted a gap in BL's management.Cazenove questions when BL will begin to make the acquisitions that are required to offset the loss of income from its sales programme, including the recent disposal of a 50% interest in the City's Broadgate development.

“We are perplexed as to why the group's £2 billion debt facility has not been used given that we believe BL was one of a small number of financially capable investors at the time of the market's nadir in the summer,” the broker says.

It questions the strength of the group's remaining management team. BL's portfolio consists of 65% retail property which had been expected to expand under Jones, who had been tipped to take over the role of group chief executive from former banker Stephen Hester. But BL appointed Chris Grigg from Goldman Sachs. Back in February, BL tapped shareholders for £740 million by way of a deeply discounted rights issue at 225p.

At the same time, Cazenove has also cut its rating on BL's blue chip rival Land Securities, mid-cap Helical Bar and small cap Development Securities from in-line to underperform. It complains BL and Land Secs, up 9p at 633p, are unlikely to outperform over the next 12 months, while Helical, 1¾p off at 365p, and Development Securities, up 10½p at 344½p, must prove to the City that the money raised earlier this year is being put to good use.

Meanwhile, Credit Suisse has turned bearish of prospects for the property sector by downgrading it from overweight to market weight.