Britain’s FTSE 100 fell in light volume yesterday, with investors selling riskier banking and mining assets as analysts concluded that the lack of detail in a European deal on fiscal union left question marks over its long-term plausibility.
London’s blue-chips fell 101.35 points, or 1.8 per cent, to 5,427.86, erasing Friday’s 0.8 per cent rise, as analysts said there was far more work for European leaders to do before Europe’s debt crisis could be solved.
Analysts at RBS, Brewin Dolphin and Credit Suisse said the lack of detail left doubts over Eurozone fiscal union, which in turn could prevent more meaningful support from the European Central Bank.
“There are no details on any of the key issues (of the European agreement) – just lots of promises. And historically, follow-through has disappointed,” Credit Suisse said.
Standard and Poor’s credit rating agency also warned that the European Union will need more summits to resolve its debt turmoil and time is running out.
Banks were the main drag on a FTSE 100 index that has remained largely between 5,400 and 5,600 since the start of December.
Royal Bank of Scotland shed 6.5 per cent as the Financial Services Authority (FSA) reported into the near-collapse of the bank in 2008. Seymour Pierce analyst Bruce Packard, who has a “reduce” rating on RBS, said he did not think the report altered the investment case for the bank.
UK mining shares fell, with worries about Europe more than offsetting strong copper import data from China. Kazakh miner ENRC dropped 7.4 per cent after a weekend news report citing talks with the Serious Fraud Office on corruption allegations revived scepticism about its corporate governance.
Inmarsat shed 5.3 per cent on concerns over the wireless service run by partner LightSquared.
Across the Atlantic, Wall Street indices were lower as the US joined the post-summit sell-off, and as Intel said fourth-quarter results would miss its forecast.
The demand for stocks offering shelter from the economic storm was the main reason the UK’s benchmark index did not register a steeper fall.
“Undeniably the post-bubble landscape is a challenging one ... An extended period of depressed economic activity and a low average returns environment appear inevitable,” said Jeff Munroe, chief investment officer at Newton, which has about £43.4bn of assets under management.
“We believe growth opportunities lie in selective emerging economies – especially those with positive demographics and low debt-to-GDP ratios, as well as in the technology, energy and healthcare sectors.”
Defensive stocks rose: drugmaker GlaxoSmithKline climbed 0.3 per cent and drinks firm Diageo one per cent.
Imperial Tobacco gained 0.5 per cent, also boosted by the quashing of a £112m Office of Fair Trading penalty imposed for allegedly restricting competition.
SABMiller outperformed the FTSE 100 as a defensively-perceived brewer, and was boosted by an upgrade to “neutral” from “underperform” by Exane BNP Paribas.
With stock valuations beaten down on the back of the global financial crisis, UK-listed companies are proving attractive. Mothercare rose 4.6 per cent, after the Sunday Telegraph said buyout firm Cinven was assessing an £150m-plus takeoverof the retailer.