The FTSE 100 was flat on Tuesday as the index reversed early losses following disappointment at reports that China will hold off material action to support its economy, setting a new growth target of 5%.
Market participants will be concerned that China isn’t planning meaningful stimulus given the slow growth rate and a GDP target far lower than historical averages. Stocks and commodities were sold as a result.
Disappointment around China was offset by strength in Intertek and Marks & Spencer. The FTSE 100 was flat at the time of writing but had started the day deep in the red.
Chinese growth was once the world’s growth powerhouse, and stimulus in response to signs of weakness was eagerly anticipated by equity markets. Anticipation was almost always met with fresh measures by Chinese authorities. Not anymore.
“Beijing wants to sort out problems in the property sector and add more jobs in urban areas – but it just didn’t seem enough to get investors fired up,” said Russ Mould, investment director at AJ Bell.
The market reaction is symptomatic of underlying concerns about the health of the Chinese economy and perceptions of underlying structural weakness, which can’t be fixed with sticking plaster stimulus measures. Today’s reaction appears to be markets telling Chinese authorities they must do more to reignite growth.
As expected, unhappiness with the economic situation played out in the FTSE 100’s China-focused sectors, especially mining companies. The sector started the session deep in the red but improved as trade progressed.
Rio Tinto was down 1.2%, Antofagasta slipped 1.1% and Anglo American was flat. Prudential was the FTSE 100’s second biggest faller.
Ashtead
Another former beacon of light for investors seeking upbeat growth stories was plant hire company Ashtead. After many years of consistently strong revenue and profit growth, the company has faltered in recent years. Ashtead’s Q3 results released on Tuesday were also soggy, with operating profit falling 3%.
“Ashtead has been a major success over the past few decades thanks to more companies deciding to rent rather than own construction equipment as well as significant spending on infrastructure in the US where it mainly does business,” Russ Mould said.
“That’s made investors consider Ashtead to be bulletproof, but the past few years have shown that it can occasionally be tough-going. “An ordinary three-month period has prompted the company to guide for full year revenue growth at the low end of the range. North America is key for Ashtead as it accounts for the lion’s share of its business, so a difficult time in that geography is always going to have a material impact.
“What will provide some reassurance to investors is this appears to be a short-term issue relating to a lower level of emergency response activity and reduced demand from the entertainment industry thanks to strikes.”
Ashtead shares fell 6%.
Intertek
Intertek will win no competition for being the sexiest FTSE 100 company. Still, the quality assurance specialist will grab the headlines today after revenue grew 7% in 2023, recording the highest like-for-like revenue growth of the last ten years.
“I would like to recognise all my colleagues for their unwavering support enabling us to deliver a strong 2023 performance in revenue growth, margin, EPS, cash and ROIC,” said André Lacroix, Chief Executive Officer of Intertek.
“Our revenue grew by 7.1% at constant currency driven by a LFL revenue growth of 6.2%, the highest in the last 10 years, and the contribution of our acquisitions. Our systemic performance management drove strong profit conversion with margins rising 60bps at constant currency, driving EPS growth of 11.0% at constant currency. Cash conversion at 122% was excellent.
Intertek shares were 6% higher at the time of writing and was the FTSE 100’s top gainer.