Britain's top shares fell further from last week's 14-1/2 year high on Monday, hurt by firms with exposure to Scotland after a poll unexpectedly showed a lead for supporters of Scottish independence before a September 18 referendum. The YouGov survey for the Sunday Times newspaper was the first this year to give the "Yes" campaign a lead, putting it on 51 percent against the "No" camp on 49 percent, overturning a 22-point lead for the unionist campaign in just a month.
The British government scrambled to respond by again promising a range of extra new powers for Scotland if it chooses to stay within the United Kingdom. Companies with strong business ties to Scotland fell across the board. Defence contractor Babcock lost 2.3 percent and engineering group Weir 1.5 percent. Lloyds Banking Group and Royal Bank of Scotland fell 2.4 percent and 1.3 percent respectively, insurer Standard Life dropped 2.4 percent and energy supplier SSE 2.3 percent. "If Scotland decides to go down the road of a new currency, what effect does that have on (these companies') Scottish assets and the valuations of their Scottish assets? We don't know," Michael Hewson, chief market analyst at CMC Markets, said.
The pound is one of several contentious issues in an increasingly heated Scottish referendum debate. Scottish First Minister Alex Salmond says Scotland would share the currency but Westminster has ruled this out, leading to uncertainty about valuations, debt and the sharing of North Sea oil revenues. The FTSE 100 closed down 20.33 points, or 0.3 percent, at 6,834.77, well off its September 4 multi-year high of 6,904.86, having also fallen on Friday, while sterling dived to its lowest in nearly 10 months against the dollar.
With 75 percent of revenues from UK bluechips coming from overseas, a weaker sterling on the back of the political uncertainty holds a silver lining for many - ARM Holdings for one, the top bluechip riser. Nick James, analyst at Numis Securities, said the fact ARM is a US-dollar revenue company but with about half of its cost base in the UK was one possible driver of the 2.6 percent share price gain on Monday.
Also, with Chinese e-commerce under the spotlight this week as Alibaba Group Holding Ltd's two-week IPO marketing blitz gets underway, ARM - which designs chips used in almost all smartphones - could be a beneficiary of any uptick in shoppers in China turning to smartphones to buy online, he said. "If you were looking for a way of getting exposure to China or the demand growth that something like Alibaba is getting, one of the things that people are a little bit focused on with Alibaba is this kind of transition of PCs to mobile in terms of where people are doing their shopping," he said.
"ARM is quite an attractive way of playing it," he added. Meanwhile, a 2.8 percentage point jump in the FTSE 100 Volatility Index, which measures the price of options on UK bluechip stocks, suggested concerns about the vote could set the market up for a rocky ride. "Currency is pretty important for FTSE returns," Gerry Fowler, global head of equity and derivatives strategy at BNP Paribas, said.
"If you do get a 'Yes' vote producing market uncertainty and the currency continues to plummet on high volatility then you might well see that the FTSE becomes more volatile - and it's probably a net benefit for the exporters," he said. Associated British Foods fell 5.2 percent despite maintaining its earnings guidance, with a good finish to the year from discount fashion chain Primark offsetting continued weakness in the group's sugar operations. "Shareholders are so accustomed to ABF upgrading profit forecasts that today's strong trading update without a material upgrade to estimates may mean some profit taking after a near doubling of the share price over the past year." Neil Shah, analyst at Edison Investment, said.