Five-year high for FTSE as HSBC lifts its earnings

A SURGE in banking shares lifted Britain’s top share index to a five-year high yesterday after Europe’s largest lender HSBC reported estimate-beating results.

Shares in HSBC rose three per cent after the bank posted a near doubling in first quarter earnings, reaping the benefit of its restructuring plan and echoing strong results from several lenders across Europe in recent weeks.

It led a rise in the FTSE 350 banking index, which ended up 2.9 per cent.

“We’ve seen strong demand for banks for the last month or so and we've still got some room to go,” said Joshua Raymond, a strategist at City Index. “Results have been fairly strong, they’ve been cutting costs more efficiently and HSBC is a perfect barometer of that.”

Of the European financial stocks that have reported quarterly results so far, 63 per cent have beaten analyst expectations, Starmine data showed, largely helped by ebullient financial markets and lower costs.

Financial shares added 27.1 points to the FTSE 100 index, which rose 35.8 points, or 0.6 per cent, to 6,557.30 points, a level not seen since December 2007.

The index has risen two per cent in the past week, helped by better US data and pledges by global central banks to continue to stimulate the economy, including from the European Central Bank’s President Mario Draghi on Monday.

“As long as you’ve got central banks providing stimulus and an efficient stop-loss on the market, bad news is good news and good news is fantastic news,” City Index’s Raymond said. “That’s why you see appetite for risk.”

Outside the banking sector earnings reports were less than rosy, with 53 per cent of European companies missing consensus forecasts.

The world’s largest security firm G4S warned on its profit margins, sending its shares down 15 per cent to 260 pence in volume nine times their average for the past 90 days.

Panmure Gordon cut its target on the stock to 311p from 340p after the announcement but still rated it a “buy” based on its inexpensive valuation. Mark Ward, head of execution trading at Sanlam Securities UK, also said yesterday’s fall presented a good entry point:

“We believe the fall in G4S following the quarter one update is overdone, and higher risk traders can make use of today’s slump and take advantage of a potential overreaction,” Ward said.

Meanwhile European shares also reached fresh peaks yesterday, with Germany’s benchmark stock market rising to a record high.

The pan-European FTSEurofirst 300 index closed up 0.2 per cent at 1,219.94 points, its highest level in about 5 years, while the STOXX Europe 600 Bank Index rose 1.9 per cent.