The FTSE 100’s natural resource sector rallied on Monday after China promised to change its approach to supporting the economy amid sluggish growth and a struggling property sector.
Oil majors BP and Shell also joined the action as oil prices rose after Syrian rebels swept into Damascus and took control of the country, increasing tensions in the region.
“London’s blue-chip index has started the week on the front foot, shaking off signs of downbeat demand in China, as energy giants gain ground amid rising oil prices,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“The benchmark, Brent Crude, has crept higher towards $72 a barrel, as a fresh wave of uncertainty engulfs the Middle East, given the rapid fall of the Assad regime in Syria. Weak demand from China and the postponement of the plan by OPEC+ nations to postpone production increases is keeping a lid on prices to some extent. However, the speed at which rebel forces took over in Syria and the unpredictability of what will come next has raised fresh supply concerns in a region already wracked by conflict.”
China’s promise to take a “more proactive” approach to fiscal policy was music to equity investors’ ears. The world’s second-largest economy’s stuttering growth has been a major concern compounded by a lack of meaningful action by the authorities, who have seemed content to let things play out. This now looks set to change.
Rio Tinto, Antofagasta, Glencore and Anglo America surged to the top of the FTSE 100 leaderboard with gains between 2.6% and 3.5% on the promise of easier Chinese monetary policy and fiscal stimulus.
“The mining sector, as well as other China-exposed stocks like Prudential, Standard Chartered and Burberry, moved higher on tweaked wording from the country’s Politburo that suggested more economic stimulus could be on the way. Stocks in Hong Kong were also higher,” said AJ Bell investment analyst, Dan Coatsworth.
WPP gained 2.3% as news broke that two of its largest competitors would merge to create an advertising giant that promises to send waves through the industry.
“Investors in WPP seemed to shrug off the prospect of two arch-rivals coming together and creating a force to be reckoned with. Speculation that Omnicom and Interpublic are plotting a $30 billion merger is the talk of the town yet shares in WPP moved 3.5% higher on Monday,” Coatsworth explained.
“On one hand, a merger of two companies this size would inevitably involve widespread cost cutting as the first course of action. That could give WPP a window of opportunity to try and poach some clients while its enlarged rival’s management is distracted. On the other hand, a merger would bring together the cream of the crop from both companies which would aid their narrative during account pitches.”
Frasers Group was the top faller after Institutional Shareholder Services, an independent proxy adviser, advised against the proposals tabled by Frasers Group in their spat with Boohoo.