Mining heavyweight Rio Tinto helped limit a slide in Britain's bluechip FTSE 100 index on Tuesday with a production update that assuaged some concern about Chinese demand. Rio said it would boost iron-ore output by at least 10 percent and banked on selling more to China - providing a fillip after data on Monday showed growth in the world's second-biggest economy and top metals consumer continued to slow.
--- Standard Chartered hit by cut in India short-term rates
The UK's bluechip share index traded higher for much of the day but closed down 29.7 points, or 0.5 percent, at 6,556.35 points - weighed down by a 2.8 percent fall in Standard Chartered after India, the emerging market-focused bank's fourth-biggest market, raised short-term borrowing costs. "The market's rolling over a bit into the close and we're starting to see some profit taking on the day's winners," Nick Xanders, head of European equity strategy at BTIG said, although he flagged the mining sector's cheap valuation as a potential reason to buy.
Rio shares rose 2.7 percent, adding 3.7 points to the FTSE and momentum to the broader mining sector, which helped drive peer BHP Billiton, due to report second-quarter earnings on Wednesday, up 1.4 percent. The basic resources sector is the third-biggest in the FTSE index but concerns about Chinese demand has made it the worst-performing sector this year.
HSBC mining analysts also took a more positive view of China - citing growth in steel demand there of 9 percent in the year to end-May - and said they liked Rio and BHP given their cheap prices relative to earnings and an attractive dividend yield. The scale of the market's aversion to the sector was visible in StarMine data to the Monday close that showed the market price of Rio implied a fall in earnings per share of 2.1 percent every year for the next 10, on a compounded basis.
That compared with an implied gain for the FTSE 100 over the same period of 1.9 percent, following an improved performance in recent days, StarMine data showed. The FTSE has recovered almost two-thirds of its May and June selloff as concern over the impact of a potential scaling back in US monetary stimulus gave way to increased confidence that it would only happen gradually, as and when growth improved.
Baring Asset Management said it had taken advantage of the slide - June was the worst month in over a year for the FTSE 100 - to add to its US, UK and Japanese exposure, as it believed easy monetary policies in each region would act to buoy stocks. The release of slightly weaker-than-expected UK inflation data on Tuesday, ahead of minutes from the last Bank of England meeting on Wednesday, could give the bank more scope to boost support for the economy - a trade some were betting on. "A lot of clients are looking at the UK and buying upside FTSE calls as a way to play the currency debasement story." said Emmanuel Dray, global head of equity derivative flow trading at BNP Paribas.
Comments
Comments are closed.