The FTSE 100 index of leading UK companies rose to its highest level in a week on Wednesday, lifted by stocks with exposure to China after the world’s second-largest economy announced a stimulus measure to support its recovery.
The blue-chip index closed 0.6% higher, while the mid-cap FTSE 250 index gained 0.9%, as investors welcomed China’s decision to cut the amount of cash that banks must hold as reserves by 50 basis points from Feb. 5.
The move, which is expected to release about 800 billion yuan ($125 billion) in liquidity, is aimed at shoring up a fragile economic recovery that has been hit by a resurgence of COVID-19 cases and power shortages.
Mining and Luxury Stocks Shine
Among the top performers on the FTSE 100 were mining companies, which rose 2.6% as a group, boosted by the prospect of higher demand for industrial metals from China, the world’s largest consumer of commodities.
Antofagasta, Glencore and Anglo American were among the biggest gainers, climbing between 3% and 5.3%.
“Today has seen prices edge higher on hopes that the new measures announced by China will provide an uplift on the demand side, although the fact that they are due to arrive just before Chinese New Year could mean that the pickup in demand might be delayed several weeks,” said Michael Hewson, chief market analyst at CMC Markets UK.
Luxury retailer Burberry also benefited from the positive sentiment around China, rising 3.7%. China is a key market for the British fashion house, which generates about 40% of its sales from Chinese consumers.
A 2.5% increase in the personal goods sector, which strong earnings from Swiss luxury group Richemont supported, also helped Burberry.
Gold Miners Sparkle
Another bright spot on the UK market was the precious metal mining sector, which surged 4.7%, thanks to positive news from all of its constituent companies.
Endeavour Mining jumped 4.4% and Centamin gained 5.2% after Liberum upgraded their shares to “buy”, saying gold equities will shine this year amid global war and trade tensions if Donald Trump wins the U.S. presidential race in November.
Fresnillo and Hochschild Mining also rose, by 4.2% and 7.5% respectively, following strong production numbers.
Meanwhile, the pound strengthened after a survey showed Britain’s economy started 2024 on a stronger footing, prompting investors to reduce their bets on the Bank of England moving quickly to cut interest rates.
Loss
Not all stocks were winners on Wednesday, however. Pest control company Rentokil was the top decliner on the FTSE 100, down 2.3%, after BofA Global Research downgraded the stock.
Tullow Oil was among the top gainers on the FTSE 250 with a 10.7% rise on guidance for strong cash flow over the next two years.
The UK stock market has been underperforming its global peers in recent months, as Brexit uncertainty and the impact of the coronavirus pandemic have weighed on investor confidence.
However, some analysts see signs of hope for a turnaround, as the UK ramps up its vaccination programme and prepares to ease lockdown restrictions.
“The UK market remains one of the most unloved and undervalued markets in the world, and we believe there is significant scope for a catch-up trade as the year progresses,” said Russ Mould, investment director at AJ Bell.
Source: Reuters
