The FTSE 100 dropped on Tuesday as investors trimmed their positions in mining companies as a China-induced rally in commodity companies paused for breath.
London’s leading index was down over 1% at the time of writing, with the lower end of the leaderboard dominated by mining companies and other China-focused companies.
“Beijing’s ‘whatever it takes’ economic stimulus programme continued to drive a strong rally in Chinese shares. Shanghai’s CSI 300 index jumped another 5.6% as trading resumed after a week-long holiday, with healthcare, technology and industrials leading the charge,” said Russ Mould, investment director at AJ Bell.
However, Mould continued to explain that while mainland Chinese stocks were in full-blow euphoria, there were doubts evident in Hong Kong indices, which were too much for UK investors to handle, and China-focused miners were dumped on Tuesday.
“The market wants firm details on fiscal stimulus which hasn’t been forthcoming. It explains why some cracks were starting to appear in the China euphoria, with Hong Kong’s Hang Seng index slipping back 7% as investors trimmed positions in consumer-facing companies, real estate and financials,” Mould said.
“You can tell some scepticism is already creeping in, given how the mining sector was firmly in the red on Tuesday. Metal producers have been keeping their fingers crossed for stronger demand from China following a miserable time for industrial commodity prices of late. However, the negative share price performance of Antofagasta, Rio Tinto and Anglo American would imply that China’s latest economic stimulus measures might not live up to the initial hype. Or it might simply be canny investors locking in some of the recent gains on the stocks just in case we see a broader pullback.”
Anglo American was down 5% while Antofagasta dropped 4.9%.
Vistry
Vistry was the FTSE 100’s top faller after the group issued a disappointing update on costs, which has rocked shares on Tuesday. Vistry shares were down 22% on the news it was lowering its profit forecasts due to the miscalculation of build costs at several of its development sites.
“Vistry announced its first major misstep this morning since changing its strategy away from traditional housebuilding. Its new Partnerships model focuses on teaming up with local authorities to provide affordable housing, which has seen the group buck the trend of a housing market slowdown in recent times,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“But it’s come to light that total costs at 9 of its roughly 300 developments have been understated by around 10%. That may not sound like much, but as a result, Vistry’s underlying pre-tax profit expectations have been wound back by £80mn, £30mn and £5mn for the current and following two years respectively. That marks a nearly 20% hit to what market forecasts had pencilled in for this year, and Vistry now expects underlying pre-tax profits of around £350mn for the full year.”