News Column

Supermarket giants lead market climbers

May 17, 2014


Britain's top equity index edged higher to finish near a 14-year high yesterday, with supermarkets advancing on a defensives-led bounce and bid speculation boosting Wm Morrison.

Sainsbury's climbed 4.5 per cent, outpacing a 3.8 percent gain by Morrisons and a 2.6 per cent rise in Tesco shares. The companies were the top three gainers on the blue-chip FTSE 100 index.

Morrison's advance was helped by mounting speculation that a U.S.- led private equity consortium was weighing a bid for the company, traders said.

The sector built on gains seen in the previous session when there was a strong bias towards defensive stocks. Frothy valuations are stopping investors from aggressively putting money to work in equities. The FTSE 100 is trading on a 12-month forward price/ earnings ratio of 13.7 times, against its 10-year average of 11.7 times, Thomson Reuters Datastream shows.

The FTSE 100 rose 0.2 percent to 6,855.81 points to finish near this week's 14-year high. It fell 0.6 per cent in the previous session, taking its cue from Wall Street, which sold off after results from Wal-Mart disappointed and as small-cap shares extended their retreat.

The UK small cap index was down 0.8 per cent, while the mid-cap index fell 1.4 per cent, underperforming the wider stock market.

The FTSE 100's gains were capped by losses at bottler Coca-Cola HBC after disappointing results, and as UK homebuilders fell on concerns that authorities may intervene to prevent a housing market bubble.

Coca-Cola HBC, the world's No. 2 bottler of Coca-Cola drinks, fell 4.6 percent, the worst performing stock on the FTSE 100 after a bigger-than-expected currency-related quarterly loss in its Russian and Ukrainian operations.

Home builders fell on growing expectations that the Bank of England may try to stop a housing bubble by tightening standards for mortgage lending.

Speculation has been rife that the central bank's Financial Policy Committee will toughen lending rules when it meets on June 17.

Barratt Developments, the country's biggest housebuilder by volume, fell 3.8 percent, while Persimmon was down 1 percent.

"Investors are watching house prices, which have risen quickly. Bank of England is clearly monitoring the situation and could take some action to stop the situation turning into a bubble," said Keith Bowman, analyst at Hargreaves Lansdown.

Britain's housing market has made a swift recovery from the global financial crisis, with prices up about 10 per cent in the past 12 months.

Mining shares fell on growth concerns in countries such as China, the world's biggest metals consumer. The UK mining index fell 1.6 per cent, led by a 2.9 per cent drop in Anglo American shares.

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Source: Herald, The (Scotland)

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