The commodity-heavy FTSE 100 slipped on Monday as miners dragged the index lower following further concerning developments in the Chinese property sector.
The FTSE 100 was down 0.3% at the time of writing.
“Renewed worries about the outlook for the Chinese economy caused tremors across global markets at the start of the new trading week. There was a slowdown in China’s industrial profit growth during October, causing markets to speculate its government will have to come up with yet another stimulus measure to avoid the economy spluttering,” says Russ Mould, investment director at AJ Bell.
“Shares in mining companies tend to slip back whenever there are concerns about China, given it is a major consumer of commodities. True to form, the big mining stocks were in the red on Monday.
“BHP dropped 1.1%, Anglo slipped 0.9%, Rio Tinto fell 0.6% and Glencore retreated 0.4%. A 0.9% drop in the Brent Crude oil price to $79.83 pulled down BP and Shell. Prudential’s focus on Asia also saw its shares caught up in the sell-off, down 0.7%.”
The problems with China’s property market do not want to go away. This may cause problems for London’s leading index through 2024.
The FTSE 100 is heavily weighted towards China, and the index’s direction is more often than not driven by Chinese economic data and developments in the property market.
High-profile problems with Chinese property giants Evergrande and Countrywide have proved to be the beginning of a rumbling crisis for Chinese property companies that is souring commodity markets and general investor sentiment.
“China’s property sector troubles look increasingly intractable as one of its huge lenders is now mired in a criminal investigation after declaring insolvency,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“The real estate boom has turned into a slow motion bust, with companies facing spiralling debt problems, and malaise seeping deeper into the financial sector. Authorities are probing illegal crimes at Zhongi Enterprise Group, which saw the value of its assets collapse as property prices have spiralled downwards. The latest twist in this sorry property tale of super-speculation is likely to hurt wider confidence further, as it burrows deep into household perceptions of wealth.”
Although China dragged the FTSE 100 on Monday, the losses were contained, suggesting investors are becoming conditioned to poor news from China and the slower Chinese economy is largely priced into markets.
Rightmove
Rightmove was top of the FTSE 100 leaderboard on Monday after the property portal shook off a slowing UK property to lift their guidance on key revenue metrics.
“The momentum that we reported in July has continued through the third quarter and beyond,” Johan Svanstrom, CEO of Rightmove, said.
Russ Mould explained the benefits of Rightmove’s business model and the resilience its displays during tougher market conditions; “It has long been argued that Rightmove could do well in both good and bad market conditions.”
“When times are good, it benefits from a steady flow of properties being advertised on its portal. During tougher times, estate agents and home developers need to work harder to attract potential buyers and that means spending more on advertising.”
Rightmove shares were 5% higher at the time of writing.