Stocks roar back

 
Michael Bow
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UK STOCK markets turned a corner yesterday after blue chip firms spurred the FTSE to its highest level in nearly five years, giving London its best start to the trading year since 1989.

The FTSE 100 list of Britain’s biggest companies surged past the 6,200 mark to its highest level since May 2008, capping off a week of consecutive gains and cementing expectations that 2013 will deliver a return to stronger equity markets.

Yesterday’s close of 6,264.91, up just over one per cent, added an estimated £17bn to the value of Britain’s top firms, with both the FTSE 250 and FTSE All Share also making gains.

Across the pond the US S&P 500 also smashed through the 1,500 mark for a brief time yesterday, the first time it has breached the level since December 2007.

The FTSE’s momentum was driven by solid economic data from around the world and talks about a potential deal involving mobile phone giant Vodafone selling its stake in Verizon Wireless. There were also rumours that first estimates of the UK GDP reading for the end of 2012, due this morning, might come in higher than expected.

And manufacturing data from China and the United States, the world’s two largest economies, grew at the fastest pace in about two years this month, providing some sign that the global economy is heading into the rest of 2013 in better shape than a year ago.

Yesterday’s rally is in stark contrast to the dark days of March 2009, when the FTSE fell below 3,700 for the first time since April 2003.

The FTSE 100 has gained 6.2 per cent since the start of the year – its best for 23 years – and has been propelled ever higher by better performing financial stocks.

Despite drastic job cuts in the banking sector, markets have cheered plans for smaller, nimbler banks, while Barclays, HSBC and Lloyds Banking Group have all contributed to driving the index higher.

Barclays added 1.35 per cent yesterday to close at 300p, having seen its share price double since last July.

Meanwhile Lloyds climbed 2.81 per cent to 53.48p – up from just 30p a year ago, and HSBC finished the day 1.41 per cent higher at 704.9p, consolidating gains that have seen it improve its share price by almost a quarter in the last 12 months.

The FTSE All Share Index has gained 7.64 per cent since the start of the year, and is close to 25 per cent higher versus a year ago.

The S&P 500 closed at 1,494.82 yesterday, while the Dow Jones hit 13,825.33. The Nasdaq fell by 23.29 points to close at 3,130.38, dragged lower by Apple’s sharp fall.

Yesterday’s bullish mood was also strengthened by numbers published by Bank of America Merrill Lynch, which revealed $35bn had come back into equity funds around the globe in the past 13 days, $19bn of which were in long only equity funds.

“The great rotation has begun and the big picture is transitioning from deflation and deleveraging to a normalization of growth, rates and risk appetite,” chief investment strategist Michael Hartnett said in a note to clients. “And while the industry flow data does not show ‘rotation’ out of bonds, our private client data does.”

Some $800bn of investors’ cash has flowed into bond funds over the past seven years and cashed in on $600bn from equity profit taking.