Britain's top share index edged higher on Friday, with some investors looking for bargains among mining and energy stocks after the recent steep sell off on global growth concerns. The biggest gainer though was Eurasian, which jumped 26.6 percent after its top shareholder said that he is considering forming a consortium with two other founders and the Kazakh government to buy out the company.
The news sparked a wave of short covering on the stock, which, as of Thursday, had 28 percent of lendable stock out on loan according to Markit data - the fourth highest utilisation rate in the FTSE 100 and 10 times more than the index average. The jump in the lightly weighted ENRC contributed just 0.6 points to the FTSE 100, though miners as a whole contributed 6.5 points, with banks and energy stocks also adding a boost.
The blue-chip index closed up 42.92 points, or 0.7 percent at 6,286.59 points, its first gain in six sessions and trimming its losses for the week to 1.5 percent. "People buying the miners at the moment it's more bargain hunting, than any economic improvement. We've seen some nice bounces out of Rio and BHP, and Vedanta is one of the standout ones," said Jonathan Roy, sales trader at London Stone Securities.
"It's obvious that if we do see a continued slide in the price of commodities, we are going to see their margins being squeezed so I wouldn't be surprised if we see some more downside on the miners in general. But when you are looking at Rio, it does look cheap at 29 pounds, when you consider that two months ago it was at 37 pounds." Flows data confirmed investors' buying on the dips mood. "We noticed a discernible shift towards purchases last week when the market was low, and this trend has persisted," said Chris Stevenson at Barclays Stockbrokers.
"Since 5 April, on average 58 percent of client trades have been purchases - against a first quarter average of 53 percent - and looking at this week in particular, the ratio has moved up slightly to 59 percent, as clients look to invest into market weakness." Edward Bland, head of research at Duncan Lawrie Private Bank, highlighted energy firm BG and miner BHP Billiton, whose shares hit seven-month lows this week, as potential buys.
"Provided a company is underpinned by a premium secure yield - and that applies to Billiton which has a prospective yield of 4 percent - you would do very well if you plumb the bottom."
BHP is forecast to have a dividend yield of 4.6 percent next year, according to Thomson Reuters StarMine Smart Estimates - the highest among all the FTSE 100 miners - but trades on just 10.5 times current earnings, in line with the sector average. Any further weakness in the mining stocks could darken the outlook for the FTSE 100, but for now technical charts show the index in a consolidation phase, bordered by the 100-day moving average and this week's low in the 6,209-6,215 points area on the bottom and last month's 5-year peak at 6,533.78 at the top.
"As long as this movement remains above the 6,215 key support level merged with the 100-day moving average, we expect a sideways movement within the 6,215-6,535 area," said David Furcajg, technical strategist at 3rd Wave Consult. "Hold long positions above 6,215 points, and if broken, reduce or exit long positions as a deeper consolidation would be then expected towards 6,090 points.
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