THE UK’S blue chip share index picked up yesterday from five-week lows after finding strong technical support in the face of easing tensions in emerging markets and prospects of mergers and acquisitions.
Emerging market assets steadied after a three-day slump, reviving confidence in global risk assets and reassuring investors worried that companies will be hit by adverse exchange rate moves, falling demand and increased competition.
Miners, which rely heavily on demand from emerging markets like China, did well. Rio Tinto rose 2.3 per cent and Anglo American added 1.8 per cent.
Aberdeen Asset Management, which invests around a third of its equities funds and 14 per cent of fixed-income portfolios in emerging markets rose 3.0 per cent.
Shares of asset managers also benefited from the prospect of acquisitions after Bank of Montreal agreed to buy mid-cap F&C Asset Management. F&C rallied 6.1 per cent.
The prospects of deals echoed in the utilities sector, with media speculation continuing to highlight Severn Trent as a possible takeover target. Its shares added 4.6 per cent.
“I think that (M&A) is going to be a recurring feature and may be one of the supporting factors for the market,” said Peter Botham, chief investment officer at Brown Shipley.
The broad FTSE 100 closed up 21.67 points, or 0.3 per cent at 6,572.33 points, rebounding from technical support at the 200-day moving average around 6,556.64 points.
Volumes, however, were in-line with average, with investors cautious ahead of this week’s Federal Reserve meeting.
All eyes will be on whether the Fed pushes ahead with plans to trim its quantitative easing – a move which could further hit liquidity-reliant emerging markets.
In addition to emerging market concerns, investors have been worried about the full-year 2013 earnings season, now in swing, and whether it will deliver profits strong enough to justify relatively elevated valuations.
The FTSE – whose member companies on average make around a third of their sales outside of Europe and North America – has fallen 4.2 per cent in the past five sessions, hitting five-week lows and underperforming other European bourses.
So far, the signals have been mixed. Underscoring the risks, Fresnillo fell 3.1 per cent after reporting a fall in gold production.