Global equities back in demand as Dubai fears fade
Stock markets rallied around the world on Tuesday as investors willingly snapped up riskier assets following the recent sell-off
The FTSE 100 index jumped 2.3% to close up 121.5 points at 5,312.2, while the FTSE 250 index gained 216.7 points to settle at 9,135.1, 2.4% higher. European markets recorded similar gains, but Wall Street, which had avoided the worst of the fall-out last week due to the timing of its Thanksgiving holiday, enjoyed a slightly more muted performance.
A US rally was also hampered by weaker-than-expected manufacturing data. The Institute for Supply Management’s manufacturing index continued to expand in November, coming in at 53.6, but this was lower than the consensus forecast and also represented a fall compared to October’s 55.7 reading.
The main news of the day, however, was Dubai World’s statement that it is in talks with lenders to restructure $26 billion of debt—just under half its total liabilities—alleviating fears that international banks could be lumbered with even more credit crisis-related write-offs.
Following the news, the US dollar eased as investors switched out of the ‘safe haven’ investment, the price of gold hit yet another record high, and oil prices rose more than 1%.
The commodity market moves fuelled substantial gains across the natural resources sector, with Mexican silver extractor Fresnillo, diversified miner Xstrata and Kazakhstan-based miner Eurasian Natural Resources each adding between 4.4% and 7.5%.
“Today has been all about bargain hunting with investors hunting any stocks that had been badly beaten over the Dubai debt fall out,” commented Joshua Raymond, market strategist at City Index. “It is becoming quickly apparent that last week’s dramatic falls, when the FTSE posted its worst loss in eight months, may have been overdone and investors have firmly switched their attention back to the wider economic recovery.”
Miners and oil producers weren’t the only sectors bouncing back on Tuesday. Banking group Standard Chartered jumped 5.2%, Royal Bank of Scotland added 3.3%, HSBC rose 2.7%, and Barclays climbed 1.3%.
Lloyds Banking Group missed out, however, sliding a further 1.8% as analysts continued to adjust their target prices to account for the country’s record rights issue, which is being undertaken by the bank in order to raise £13.5 billion to shore up its balance sheet.
Among other blue-chip casualties, TUI Travel joined its peer Thomas Cook is falling into the red despite in-line numbers. Both stocks had enjoyed a strong run up into their respective results and while Thomas Cook suffered on Monday, TUI took its turn on Tuesday.
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