London Report: China slowdown knocks fizz out of FTSE’s drinks

BRITAIN’S benchmark equity index fell yesterday, pulled down by major drinks stocks such as SAB Miller and Diageo on signs of slowing consumer demand in China.

But many traders said that any market weakness in November would be followed by a rally in December that could push the index back to its 2013 peaks.

The blue-chip FTSE 100 index closed down by 0.9 per cent, or 58.40 points, at 6,636.22 points. Trading volumes came in at about 1.5 times above the average 90-day volume for the index.

SAB Miller fell 2.4 per cent while Diageo fell 1.6 per cent after Remy Cointreau warned of a double-digit profit decline in its full-year profit because of a slowdown in China.

Together, SAB Miller and Diageo took the most points off the FTSE 100.

Shares in Remy Cointreau fell more than seven per cent on the Paris Stock Exchange and the STOXX Europe 600 food and beverages index was the top sectoral decliner in Europe.

“The Remy profit warning left SAB Miller and Diageo licking their wounds,” Sucden Financial trader Andrew Crook said.

Tim Gregory, head of global equities at Psigma Investment Management, argued that even though the drinks sector faced near-term challenges, its longer-term outlook was more robust.

Many analysts expect drinks groups to gradually cash in on rising consumer demand in areas such as China and India.

“Although there are clearly short term headwinds for the high-end spirits market, the long-term opportunity for the industry is still strong, so we would see any short-term weakness in stocks like Diageo as an opportunity to buy the shares,” said Gregory.
The FTSE remains up by around 13 per cent since the start of 2013. It reached a five-month peak of around 6,800 points in late October, having hit a 13-year peak of 6,875.62 points in late May, helped by a gradual recovery in the British economy.

“We’re still expecting a year-end rally, but we won’t buy unless it either falls to 6,600 points or if it holds above 6,700,” Logic Investments director of trading Darren Easton said.

APS Alpha technical strategist Adrian Slack also expected the FTSE to get back to the 6,800 level in December.

Slack said if it rose above that, it could then challenge the 7,000 point level by the end of 2013, which would represent an all-time high for the index.