BANKS helped drive Britain’s top shares to a near seven-week high yesterday following a Portuguese debt auction, while Marks & Spencer rose on better-than-expected sales, lifting sentiment in retailers.
The FTSE 100 ended up 34.07 points, or 0.6 per cent, at 6,041.13, its highest closing level since 18 February.
Lex van Dam, hedge fund manager at Hampstead Capital, is bullish on the FTSE 100’s prospects in 2011, seeing “an enormous switch out of bonds into equities”.
“The big issue at the moment is the worry about inflation and the search for yield, and there’s a lot of people who own lots and lots of bonds – they are starting to get really worried about it because it's just not a great asset class to hold when there’s inflation coming in.”
Banks were in favour, notching up a 4.1 per cent rise this month in the wake of March’s 6.2 per cent decline, as the sale in Portugal of 6- and 12-month treasury bills brought some temporary relief, with markets closing before the country’s finance minister admitted it would need an EU bailout.
The yield on 12-month T-bills spiked to 5.902 per cent from 4.311 per cent three weeks ago, and on six-month bills to 5.117 per cent from 2.984 per cent, highlighting the financial pressure ahead of big redemptions this month and in June.
Lloyds Banking Group led the sector higher, firming 3.9 per cent, with traders citing expectations that it will avoid a call for a break-up of its business by the Independent Commission on Banking.
Marks & Spencer was the standout blue-chip riser, up six per cent, after beating sales forecasts and winning market share with innovative products like stormproof suits, new food ranges and staples like lingerie.
Sector peers, which endured a torrid time last week on downbeat news from companies including Dixons, Mothercare and John Lewis, found support, with Next the third biggest riser, ahead 3.2 per cent.
Jamie Seaton, manager of the £58.7m SVG UK Focus Fund, run by SVG Investment Managers, is bearish on the retailers.
“We think there’s limited pricing power,” he said. “The consumer is going through a process of deleveraging, and it’s very very hard to see how these (firms), unless in exceptional circumstances, can grow their top-line in this type of environment.”
He does however have a small holding in Tesco on account of its dominant position in the retail space and as it is seen as longer-term undervalued. “Whilst a potential price war is not beneficial to the sector in general, long term the last man standing is said to clean up, so any issues which Tesco might have, Sainsbury/Morrison/whoever are going to feel it significantly harder and Tesco we believe is the ultimate beneficiary.”
Elsewhere, FTSE 100 tour operator TUI Travel and midcap peer Thomas Cook advanced 2.6 per cent and 3.2 per cent respectively after Citigroup upgraded its ratings on the pair on valuation grounds.
Cairn Energy topped the FTSE 100 fallers’ list, off 2.8 per cent, as the Indian cabinet further delayed a decision on its sale of a majority stake in Cairn India to Vedanta Resources. Vedanta reversed earlier gains, dropping 0.8 per cent.
Pearson and Wolseley both fell after going ex-dividend.