London Report: Glaxo troubles in China weigh on the FTSE 100

BRITAIN’S blue-chip share index ended slightly lower yesterday, weighed by GlaxoSmithKline’s problems in China, but remained close to a retest of seven-week highs.

Glaxo, the FTSE 100’s biggest pharmaceutical company by market capitalisation, fell 1.2 per cent and accounted for more than half the broader index’s decline after it said some staff in China appeared to have broken the law.

Deutsche Bank analyst Mark Clark said the market would likely find out more at Glaxo’s quarterly results tomorrow, and added that China sales made a relatively small contribution to the company’s earnings.

“China – while heading to become the world’s number two pharmaceuticals market – is still only around 3.5 per cent of GSK’s pharma sales and in our view almost certainly a smaller proportion of its EPS (earnings per share),” he said.

Peer AstraZeneca erased early gains to end 0.1 per cent lower after it said Chinese authorities had visited its Shanghai office, making it the third foreign firm to be targeted after GSK and Belgium’s UCB.

The pharma sector weakness acted as a drag on the broader index, which ended down 0.1 per cent, or 7.5 points, at 6,623.17 points – around 30 points off a fresh test of the highs hit in late May.

Ian Williams, equity strategist at Peel Hunt, said index moves over the next few weeks would likely be driven by earnings releases, and that relatively favourable year-on-year comparisons could lead to companies beating forecasts.

“We need that because valuation has come a long way. We’re back above 12 times forward earnings now on the All Share, on consensus numbers. While that’s not expensive, it’s come from 9 times just over 12 months ago and all the performance has been from a re-rating, whereas forward earnings have been flat,” he said.

FTSE 100 companies scheduled to report quarterly earnings are expected to post an average earnings beat of 3.6 per cent, StarMine data showed.

Meanwhile in Europe shares rose to seven-week highs, led by financials after upbeat quarterly results from UBS fuelled hopes for European bank earnings. The FTSEurofirst 300 closed 0.14 per cent up at 1,210.70 points.

Shares in UBS gained 2.5 per cent and hit a level not seen since early 2011, after it came out early with better-than-expected results.