FTSE breaks four-day losing streak on hopes of Chinese fiscal stimulus

UK blue chips broke a four-day losing streak in thin volume yesterday as mining stocks rallied on speculation about new economic stimulus from the world’s top metals consumer, China.

Mining shares rose 1.3 per cent after weak manufacturing data from China raised expectations that Beijing would launch new monetary stimulus measures to revive its economy.

“China is very reminiscent of what we’re seeing at a global level,” Chris Wyllie, chief investment officer at Iveagh.

“We seem to have this drug-addicted market, looking for stimulus in China, overreacting to growth slowdowns, assuming that it must inevitably be the harbinger of the next bear market, and therefore looking for the drug fix in response.”

Shares in the UK mining sector have fallen around 20 per cent since early August on the back of largely lacklustre trading updates, which showed that second-quarter earnings fell on average by 44 per cent due to decline in Chinese demand.

Wyllie warned that Chinese authorities may be reluctant to act given that part of the slowdown seen in new orders was due to anaemic growth in the Eurozone and could not be stimulated by Beijing.

The FTSE 100 closed up 46.93 points, or 0.8 per cent, to 5,758.41, having shed 2.6 per cent over the previous eight trading days, although volumes were low as the US market closed for Labor Day.

Among the few heavily traded stocks, Admiral Group fell three per cent to the bottom of the FTSE, after both Credit Suisse and Canaccord Genuity cut their ratings.