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The Guardian: Storm forces investors into safe haven

Investors were searching out safe havens yesterday as London shares headed south again.

Nick Fletcher
Tuesday January 29 2008

The FTSE 100 index was in the red all day, following hefty overnight falls in Asia on growing fears of recession not just in the US but possibly in Japan and elsewhere. A recovery on Wall Street yesterday afternoon – prompted by increasing speculation of a half-point cut in US interest rates this week – helped London shares climb back from their worst levels. So having fallen as far as 5705.1, the leading index closed down 80.1 points at 5,788.9.

The London Stock Exchange was the top riser in the FTSE 100, up 37p at £17.68 as traders said it was benefiting from the current market volatility. For a similar reason, interdealer broker Icap added 9.5p to 665p.

BAE Systems rose 5.25p to 473.25p on the back of a positive note from Morgan Stanley. The bank’s analysts put an overweight rating on the company and a 540p price target. They said: “BAE Systems is a good place to hide amidst fears of a US recession and a global slowdown as it has all the characteristics of a defensive stock [including] heightened visibility across a diverse revenue base and a strong balance sheet. We encourage investors to build positions ahead of full-year 2007 results on February 21 as consensus estimates are still 10% too low for 2008 and 2009. BAE trades at an 18% discount to its US defence peers. However, we don’t think any discount is justified, given BAE’s exposure to the higher growth end-markets in the US and further opportunities for upside in Saudi Arabia.”

But recession fears hit the price of oil and metals such as copper, on worries about falling demand. So the oil majors and the mining companies were unwanted. Anglo American lost 125p to £24.65, Antofagasta fell 24.5p to 627.5p and Rio Tinto was 147p lower at £45.49.

The sector was also unsettled by the power problems in South Africa which have halted production at a number of different sites. One exception was Xstrata, up 12p to £35.12 on hopes that Brazilian group Vale was close to making an offer for the business.

As for the oil companies, Royal Dutch Shell lost 21p to £18.19 ahead of its results this week, and BP slid 7p to 531p.

Housebuilders were weaker, after a Hometrack survey yesterday showing house prices falling for the fourth month in a row. Economists believe the Bank of England is unlikely to follow the example of the US Federal Reserve and make a hefty cut in interest rates next week. A quarter-point reduction will not do much to support the housing market. So Taylor Wimpey was 10.1p lower at 183.3p, Persimmon fell 35.5p to 790.5p and Barratt Developments dropped 28.75p to 428.25p.

Takeover speculation and a positive note from Dresdner Kleinwort did little for the banking sector. Standard Chartered slipped 50p to £16.41 despite news that Singapore state fund Temasek had increased its stake from 18% to 19.03%. Dresdner also picked Standard as one of its tips in the sector, along with HBOS, down 8p at 677.5p, HSBC, off 15p at 756p and Lloyds TSB, 7.25p lower at 422p. Alliance & Leicester fell 11p to 725p as Dresdner advised clients to sell.

But telecoms group Carphone Warehouse gained 0.5p to 299.5p as Morgan Stanley moved from underweight to equal weight and Credit Suisse issued an outperform recommendation with a 400p a share target.

Credit Suisse said: “We believe the longer-term development and potential within the group’s broadband business are still not recognised [by the share price]. Carphone continues to offer superior growth prospects compared to its peers, broadband pricing has so far remained relatively benign and underlying cash flow characteristics considerably improve running into 2008.”

Last week the company – where US partner Best Buy holds 3% – was subject to vague takeover speculation.

On Aim, music group Zest jumped 0.07p to 0.21p after it announced the sale of its Greensleeves record company for £3.1m. The proceeds will be used to repay debt and provide working capital for its remaining group of artists.

An upbeat trading statement from CustomVis, which makes and distributes laser systems for eye surgery, pushed its shares 12.5% higher to 4.5p.

But IT group Maxima slumped 93p to 147p as it warned results for the year would be below market expectations, partly due to delays in winning contracts it had anticipated would be signed before the year end.

Seymour Pierce cut its recommendation from buy to underperform, saying: “Investors will be rightly concerned about visibility for the second half and beyond. Whatever the reasons for the warning, the news throws Maxima’s near term strategy into doubt. It will clearly take time to rebuild shareholder confidence, and we await more detail with the interims on 5 February.”

Spotting rogues

The antics of SocGen rogue trader Jérôme Kerviel have put the spot light on the need for proper market surveillance systems. So it is a good time for security technology company Detica to win a contract to provide Project Turquoise – the share trading platform being developed by nine investment banks – to identify market irregularities. The news comes shortly after Detica, down 4p to 214.75p, signed a fraud prevention deal with HSBC. In a buy note yesterday, ABN Amro said: “This is another solid contract win in the banking sector, suggesting investor concerns regarding [its] financial services market exposure may be overplayed.”

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