BRITAIN’S leading share index fell one per cent yesterday on concerns that political unrest could spread to top oil exporter Saudi Arabia, pushing crude prices higher and sending oil-sensitive travel firms lower.
Brent crude rose 1.8 per cent to above $113 a barrel on a report, promptly denied, of Saudi involvement to try and quell protests in Bahrain. Nevertheless, the report in an Egyptian newspaper rattled investors.
Travel-related stocks bore the brunt. Cruise operator Carnival shed 6 per cent in heavy trade, InterContinental Hotels lost 4 per cent, and International Airlines Group slipped 0.8 per cent after trading as much as 3 per cent higher earlier.
“Libya is a sideshow; it’s not as big a show as a week ago. Saudi Arabia is a big concern,” said Jawaid Afsar, trader at Securequity. “The slightest of rumours will make this market roll over very quickly.”
Revolt in Libya has cut as much as half of the OPEC member’s output, though Saudi Arabia has stepped in and plugged the supply gap. The worst-case scenario for oil markets would be an interruption to supply from Saudi Arabia, which holds most of the world’s spare crude output capacity.
The wider fear is that sustained higher oil prices could dampen global growth.
The FTSE 100 closed down 58.25 points at 5,935.76 after trading as high as 6,040.43 earlier. Volumes on the benchmark were about 109 percent of its 90-day daily average.
Meanwhile the FTSEurofirst 300 index of top European shares ended 0.6 per cent lower at 1,161.92 points, resuming last week’s pull-back that was triggered by escalating violence in OPEC member Libya.
Index heavyweight HSBC shed 3 per cent in strong volume after brokers Deutsche Bank and UBS downgraded their ratings. Yesterday’s fall extended the previous session’s 4.7 per cent drop after HSBC cut profitability targets and its annual profits fell short of expectations.
“The results are not that bad to warrant such a big drop in the share price ... The shares are coming back to reasonable valuation levels,” a dealer said, adding that he was looking to buy at a price range of 650 to 665 pence.
HSBC shares are approaching oversold territory, with the 14-day relative strength index (RSI) reaching 36.1. Thirty and below is considered oversold.
Outsourcing group Capita, however, rose 5.2 per cent after saying it was in talks with Zurich Financial Services about an extension of the term of Capita’s existing contract.
Associated British Foods rebounded 2.7 per cent in heavy volume after Evolution Securities upgraded the owner of discount fashion retailer Primark to “buy” from “neutral”.
The stock lost 5.9 per cent on Monday after it reported a slowdown in growth at Primark, a major driver of its performance.
FTSE 100 companies are expected to post a 21 per cent increase in earnings in 2011 after an estimated 55.2 per cent rise last year, according to Thomson Reuters.
That compares with an estimate of 15.7 per cent earnings growth for STOXX Europe 600 companies this year and 14.5 per cent for US S&P 500 companies.
But the UK index, with a one-year forward price-to-earnings (P/E) of 10.5 times, is cheaper than the other two indexes, Thomson Reuters Datastream showed.