Yesterday’s optimism around Chinese stimulus was short-lived. The hope that China would boost the economy through a mix of looser monetary policy and fiscal measures has quickly been met with scepticism about the effectiveness of their plans.
The result was a 0.5% drop in the FTSE 100 as China-focused stocks reversed much of yesterday’s gains.
“The FTSE 100 was in the red amid concerns that China’s economic stimulus measures might not have a long-lasting effect,” said Dan Coatsworth, investment analyst at AJ Bell.
“That triggered a sell-off in miners as investors worried that the Asian superpower wouldn’t have strong enough economic activity to drive a big increase in commodities demand.
“Chinese exports grew at a slower pace in November versus October and imports shrank. That doesn’t install much confidence about Beijing’s efforts to get the country back on top. The prospect of higher tariffs on Chinese goods exported to the US once Donald Trump is back in the White House also cast a dark cloud on the near-term outlook, making investors nervous about the region.”
The FTSE 100’s exposure to China means that any developments in the world’s second-largest economy have the potential to drive returns at an index level. The FTSE 100’s drop on Tuesday was almost exclusively due to concerns about China, with companies reliant on the country making up most of the top fallers. Antofagasta, Glencore and Prudential were all down over 2%.
Ashtead was the FTSE 100’s top faller, tanking over 12% after lowering its profit guidance amid slower revenue rental growth. Ashtead also dealt a major blow to London’s equity markets with plans to switch its primary listing to the United States.
“Equipment rental giant Ashtead is packing its bags and heading stateside, dealing another blow to UK markets. The move had been whispered about for a while, despite Ashtead previously insisting there were no such plans,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“It’s a logical leap – most of its leadership is already US-based, and the States are its biggest market. There will still be a secondary listing in the UK, albeit with less stringent requirements than a full listing. As for today’s results, they were a letdown, missing expectations across the board and topped off with a guidance downgrade. Sluggish commercial real estate is still a drag, but investors can find a silver lining in easier comparable quarters on the horizon and the longer-term tailwind of mega projects in the US.”
There was some marginal positivity in retailers such as B&M, Sainsbury’s and Tesco, but not enough to offset losses elsewhere.