Britain's top share index touched a five-week low on Friday and headed for its biggest weekly drop in eight months, with growth-driven stocks losing ground before a referendum in Ukraine's Crimea region. The fund management, insurance and mining sectors, all highly sensitive to economic conditions, came under pressure as investors looked to cut exposure to riskier assets heading into the weekend, when Ukrainians in Crimea vote on whether to join Russia. Moscow said it would veto a US-drafted UN resolution to declare the referendum illegal.
The UK's second-largest independent asset manager Aberdeen Asset Management fell 2.8 percent, British Airways-owner International Airlines Group dropped 3 percent and building supplies group CRH was down 1 percent. "Investors are nervous ahead of the referendum in Ukraine as its expected outcome is likely to create further instability in the market and could prompt the West to impose more sanctions against Russia," James Butterfill, global equity strategist at Coutts, said.
"High beta stocks are hard hit as people are concerned that further sanctions would not only hurt Russia but some other European countries that rely quite heavily on Russia for their energy supplies," he said, referring to high beta stocks such as financials that are often more volatile than the broader market. The geopolitical situation remained fragile, with Moscow shipping more troops and armour into Crimea and repeated its threat to invade other parts of Ukraine.
The blue-chip FTSE 100 was down 0.2 percent at 6,538.52 points by 1550 GMT, taking the week's total losses to 2.6 percent, the biggest decline since June last year. The UK mining index fell 0.5 percent to become the top sectoral decliner. "The market is spooked due to the prospect of more sanctions against Russia as an awful lot of money comes to the market from some very rich Russian investors. The FTSE was touching new highs anyway and Sunday's referendum has become a perfect excuse to take some money off the table," David Battersby, investment manager at Redmayne-Bentley, said.
"Until the Ukraine crisis is sorted out, which could drag on for a while, the market does have the potential to move down even further. But I am not talking about a massive leg downwards. In the worst case scenario, the FTSE 100 could fall up to 6,400, at which point it will become relatively cheaper." Charts also painted a bearish picture. After falling below its 50-day and 100-day moving averages this week, the FTSE 100 fell below its 200-day moving average and a 61.8 percent Fibonacci retracement of a rally from February 4 to 24 on Thursday.
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