BRITAIN’S FTSE 100 climbed to its highest close in four months yesterday, with heavyweight miners and energy stocks rallying on expectations of global economic stimulus and outweighing a steep sell off in Standard Chartered.
The bank’s shares plunged 16.4 per cent in their biggest one-day sell off in four years after New York’s top bank regulator threatened to strip the lender of its state banking license, saying it hid $250bn (£159.8bn) in transactions tied to Iran, in violation of US law.
The stock single handedly sliced around 19 points off the FTSE 100, pushing the UK blue chip index to underperform its rallying European peers and setting up the UK banking sector for its worst performance since ECB president Mario Draghi gave risk assets a broad boost two weeks ago with a pledged to act to stem the Eurozone crisis.
“It is so oversold that people are saying it’s a good time to buy, but I am saying fundamentally not. There is still a tail risk that the licence could be taken off. Even if that doesn’t happen you still suffer from lots of reputational damage, so the downside risk is so high. That’s why I will be a seller,” said Chirantan Barua, senior analyst at Sanford Bernstein.
“Broader implications are [that] there is no clean bank in the UK and the UK regulatory system will be under scrutiny. You have the last of the Mohicans and if they’ve gone, this whole sector is tainted.”
The Standard Chartered news comes fresh on the heels the Libor interest rate rigging scandal, which has embroiled Barclays and RBS among others.
The FTSE 100 underperformed a rally of 1.6 per cent in Eurozone blue chips. But the UK benchmark still added 32.47 points, or 0.6 per cent, to reach 5,841.24, its highest close in four months.
Standard Chartered aside, investor sentiment remained relatively upbeat, with gainers on the FTSE outstripping fallers by more than two to one as investors remained upbeat about the prospects of fresh stimulus from the ECB and possibly also the US Federal Reserve.
Hopes of brighter economic outlook boosted prices of oil and metals, sending positive wave through Britain’s heavyweight energy and mining sectors.
Steel firm Evraz topped the leaderboard, gaining 10.3 per cent in yesterday’s session. ENRC, Anglo American and Polymetal joined the firm in the top five gainers of the day, gaining between 4.3 and 5.9 per cent.
Xstrata, which posted better than expected first-half results, closed up 1.6 per cent.
“Miners are going up, people are looking at the States now saying we are going to get out of recession,” said Trevor Coote, head of equity sales at Alexander David Securities.
“I think we’ve got a bit of an Olympic stealth rally coming up ... In the last 10 days we’ve had eight up-days so I am quite bullish. I’d like to see us to 6,000, but I am not sure we’ll get there in a straight line.”
A smaller than expected fall in UK manufacturing output in June and a crop of corporate reports also helped boost sentiment. InterContinental Hotels, the world’s biggest hotelier, added 6.4 per cent after promising to return $1bn to investors.