Britain’s top share index fell on Friday on some disappointing earnings and weaker miners,although analysts said attractive valuations and an improving growth outlook were likely to keep its recent uptrend intact.
The FTSE 100 index had risen for four straight days from Monday and ended 1.8 percent higher on the week,but fell on the last day as earnings reports from companies like Aggreko and McDonald’s failed to impress.
Miners meanwhile tracked metals lower on concerns about demand in top consumer China. UK miners fell 1.1 percent,mirroring losses of 1.8 to 2.4 percent in key base metals after China’s Commerce Ministry said the latest encouraging trade data was not enough to confirm a recovery trend in the external sector.
We are neutral on materials. There is still a lot of uncertainty on the growth picture for the next year,in both directions,said Robert Parkes,equity strategist at HSBC Securities.
The mining sector is particularly sensitive to developments in China and investors are likely to wait until they get confirmation the Chinese economy is re-accelerating before they rekindle their interest in this sector.
A drop in shares of companies such as Rio Tinto,down 1.8 percent,and Xstrata down 1.4 percent,made miners the day’s worst performers.
Other cyclicals like banks,which ended down 0.9 percent,also helped push the FTSE 100 index further away from Thursday’s seven-month closing high.
The UK benchmark index finished 20.90 points,or 0.4 percent,lower at 5,896.15. The index is up about 6 percent so far this year,having climbed about 12 percent since early June.
Friday’s trading saw defensive stocks gaining ground,with Vodafone,GlaxoSmithKline and Associated British Foods rising 0.3 to 0.7 percent.
The test now will be to see if investors can push indices beyond their resistance levels in the coming days,as we’ve seen all too often in the past few months (that) rallies have not been able to maintain their momentum,Angus Campbell,head of market analysis at Capital Spreads,said.
Analysts said the market still had momentum behind it to scale new highs in the coming weeks as some recent U.S. economic numbers pointed to a recovery in the housing and labour markets and UK equities remain attractive on valuation grounds.
The spotlight has now fallen on valuations,which are still at a very low level. There are plenty of value opportunities in sectors such as financials,telecoms,utility and energy,Parkes said.
The FTSE 100 index traded at 10.4 times its one-year forward earnings,against its 10-year average of 13 times,according to Thomson Reuters data.
But investors continued to stay cautious as they still faced a lot of uncertainties related to the euro zone debt crisis,global growth and earnings,which continued to be mixed.
British group Aggreko,the world’s biggest temporary power provider,fell 7.2 percent after saying that 2012 profits would be hit by bad debt provisions and exchange rates.
We remain fairly neutrally positioned,but with a slightly cautious bias,given that we are still unsure which way the tug of war between monetary stimulus and weak fundamentals will fall,Octopus Investments said in a note.
We have continued to take some profits from funds that have benefited from more positive sentiment within markets at present – thanks to the central bank intervention of last month – and have been putting that money back into the more defensively positioned managers that have lagged recently.
Keith Bowman,analyst at Hargreaves Lansdown,said investors were staying cautious and high dividend-paying stocks were still a core part of many people’s portfolios. He liked companies such as Tesco,Vodafone and Unilever.
Charts showed that the UK index faced stiff resistance around its 2012 highs,and a breach of the level could send a strong bullish signal.
After a strong week,a move above 5,950 is key for the FTSE 100 index to maintain momentum. This level would see a new trend channel high,confirming that the uptrend is still intact,Julian McCormack,technical analyst at Brewin Dolphin,said.
Failure to do so increases the likelihood of the formation of an ascending triangle pattern,suggesting the market is due for a pause as sideways resistance takes hold.