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Markets week Investors seek shelter from storms hitting the world's stock markets

February 1, 2014

Nick Fletcher

As rain battered the country to produce the wettest January weather for at least a century investors were also forced to seek shelter from the storms hitting global stock markets. The FTSE 100 finished at 6510.44 yesterday, down 28.01 points on the day and 153 points on the week. Over the month it lost 239 points or 3.53%, its worst January performance since 2010 when it fell 4.14%. Until just over a week ago, things were looking bright, with the leading index coming within 65 points of its all-time high of 6930 as US, UK and European economies seemed finally to have turned the corner. But attention suddenly turned to emerging markets, as it became apparent that the US Federal Reserve's decision to trim its monthly bond buying programme was having a negative effect on high yielding risky investments. A number of countries, including Turkey , South Africa and India , were forced to raise interest rates to protect their currencies, as investors reacted to the Fed turning off its money taps by pulling their cash out of emerging markets. Wednesday's decision by the US central bank to reduce its stimulus measures by another $10bn - although widely trailed - added to the sense of contagion rapidly spreading. Political and economic problems in Argentina and the Ukraine did not help sentiment, while signs of a manufacturing slowdown in China suggested that the recent optimism about the global recovery might have been premature. A number of disappointing updates from major companies also soured the mood. These ranged from US supermarket group Wal-Mart yesterday to Royal Dutch Shell , whose A shares fell 44p to 2103.5p yesterday, and Royal Bank of Scotland , down 7.4p at 340p. Michael Hewson , chief market analyst at CMC Markets , said: "This plethora of bad news appears to have punctured any optimism that stock markets could well be stabilising with sharp falls across the board, as this month's falls wipe out all of December's gains." Among the week's worst performers were, inevitably, companies with large exposures to emerging markets. Drinks group Diageo , which warned of a sales slowdown in China and other fledgling markets, dropped 19.5p to 1800.5p yesterday while SABMiller fell 13p to pounds 27.40, Coca Cola Hellenic closed 54p lower at pounds 16.13 and Unilever ended down 19p at 23.39. Asia -focused bank Standard Chartered lost 20.5p to pounds 12.40. BAE Systems fell 6.9p to 429.1p after Barclays put an underweight rating on the shares with a 380p price target, but BT climbed 12.4p to 383.3p after well received results. With volatility once more rife in the market, investors sought out defensive stocks, including tobacco shares. Imperial Tobacco added 41p to pounds 22.23 as Goldman Sachs raised its recommendation on the business from neutral to buy and its price target from pounds 25.45 to pounds 28.40. British American Tobacco was 26.5p better at pounds 29.16 as Goldman repeated its buy rating, albeit cutting its target from pounds 41.20 to pounds 34.20. J Sainsbury was in the spotlight after the surprise announcement that chief executive Justin King was stepping down in July. Its shares closed down 4.8p at 344.9p yesterday, having fallen as low as 335p on the day of the news. Among the mid-caps, Intu lost 10.4p to 315.6p as the property company confirmed it was in talks with Westfield about buying its Derby shopping centre for around pounds 400m and a stake in the Merry Hill centre in Dudley . It said any deal, if it happened, would be funded by a mixture of new debt and equity. Analyst Sue Munden at Cantor Fitzgerald said a 10% placing was likely, equivalent to around pounds 320m. Serco came out with classic good news and bad news. It said on Thursday it had been given another chance at UK government contracts after an investigation into the company overcharging on an electronic tagging deal. But it also warned that 2014 profits could be up to 20% less than market expectations, leading to suggestions it might need to raise extra funding. But after a 17% fall on Thursday, Serco added 13.9p or 3% to 437.1p yesterday.

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Source: Guardian (UK)

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