Last updated: October 6, 2008 7:54 pm
The London market was routed on Monday with the FTSE 100 suffering its biggest one day percentage fall since Black Monday in 1987, and biggest points fall ever.
The blue-chip index dropped 391.1 points, or 7.9 per cent, to finish at a four year low of 4,589.2 as investors threw in the towel amid fears that a deep global economic slow down was taking hold in spite of measures to bail out the banking system.
This was reflected by the performance of the mining sector, which led the FTSE 100 lower. Kazakhmys slumped 26.6 per cent to 417¾p, while ENRC, which listed at 540p in December, lost 23.4 per cent to 425p, Fresnillo shed 19.9 per cent to 225p and Xstrata ended 19.2 per cent lower at £13.57.
UBS said it now expected global GDP growth of just 2.2 per cent in 2009, down from 2.8 per cent previously. “This suggests a global recession,” the bank said. “As a result we have cut UK mining sector earnings forecasts for 2009/10 by 38 per cent and 41 per cent,” it continued.
On top of that, traders noted that four Chinese steel companies were considering reducing output by 20 per cent, or 20m tonnes, and benchmark ferrochrome prices for the fourth quarter had been set 10 per cent below the previous quarter.
However, Ferrexpo, the Ukrainian producer of iron ore pellets, managed to outperform, falling just 2.1 per cent to 115p after Czech coal producer New World Resources, down 23.1 per cent to 500p, picked up a 20 per cent stake at just 86p a share from Ferrexpo founder Kostyantin Zhevago.
The Ukrainian billionaire, who retains a 51 per cent holding in Ferrexpo, was forced to sell to meet a margin call on a loan, for which the shares were held as collateral.
Banking stocks also slumped. With money markets still gummed up, HBOS dropped 19.8 per cent to 160.8p while Lloyds TSB fell 10.8 per cent to 259p. Based on last night’s closing price, HBOS is trading at a 25 per cent discount to the implied value of Lloyds’ all stock offer. On Friday, the discount was 17 per cent.
Sandy Chen, banks analyst at Panmure Gordon, advised clients to sell Barclays, off 14.7 per cent to 314p, and Royal Bank of Scotland, down 20.5 per cent at 148.1p, citing their potential exposure to defaults on credit default swaps.
“We broadly estimate there could be $50bn of payouts related to Fannie Mae and Freddie Mac CDS, and $400bn of payouts related to Lehman CDS. We think it highly likely that many counterparties, particularly hedge funds, will not be able to raise the cash to meet their ends of these bargains,” Mr Chen warned.
Land Securities fared rather better, closing just 5.1 per cent lower at £12.25 – after John Whittaker’s Peel Holdings announced a raised holding of 5.5 per cent.
Taylor Wimpey was among the biggest fallers in the FTSE 250, which closed 520.8 points, or 6.5 per cent, lower at 7,474.8. Its shares fell 20.1 per cent to 27¾p as investors reacted to Friday’s late news that Fitch had downgraded its rating on the housebuilder’s senior unsecured debt rating to B from BB-. The move followed Friday’s announcement that Taylor Wimpey’s eurobond creditors would be part of its covenant renegotiation process, in addition to bank and US private placement creditors “This process is progressively moving towards a work-out scenario,” Fitch warned.
Rentokil Initial dipped 3.7 per cent to 65¼p on concerns the support services group might need to raise capital from shareholders to pay back a £250m bond which matures next month.
“If it [Rentokil] is unable to refinance at rates it deems acceptable or it is unwilling to draw down further on its banking facilities it could look to raise cash in the equity markets,” Goldman Sachs warned in a recent note.
Traders said pub stocks had been hit by investors being forced to close positions after an Icelandic investment bank increased margin requirements on derivative contracts. This was also a factor in the poor performance of J Sainsbury, down 5 per cent at 313p.
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