Travel stocks bear brunt as investors fear unrest could spread to Saudi

FTSE:5,935.76 (-58.25) Mid-250:11,574.12 (-47.17) Small Cap:3,252.50 (+13.36)

BRITAIN’S LEADING share index fell 1 per cent on concerns that political unrest could spread to Saudi Arabia, pushing crude prices higher and sending oil-sensitive travel firms lower.

Brent crude rose 1.8 per cent to above $113 a barrel on a report, promptly denied, of Saudi involvement to try and quell protests in Bahrain. Nevertheless, the report in an Egyptian newspaper rattled investors.

Cruise operator Carnival shed 6 per cent. InterContinental Hotels lost 4 per cent, and International Airlines fell 0.8 per cent.

“Libya is a sideshow. Saudi Arabia is a big concern,” said Jawaid Afsar, trader at Securequity. “The slightest of rumours will make this market roll over very quickly.”

Revolt in Libya has cut as much as half of the Opec member’s output, though Saudi Arabia has stepped in and plugged the supply gap. The worst-case scenario for oil markets would be an interruption to supply from Saudi Arabia.

The wider fear is that sustained higher oil prices could dampen global growth.

FTSE heavyweight HSBC shed 3 per cent in strong volume after brokers Deutsche Bank and UBS downgraded their ratings. The fall extended the previous session’s 4.7 per cent loss after HSBC cut profitability targets and its annual profits fell short of expectations.

Outsourcing group Capita, however, rose 5.2 per cent after saying it was in talks with Zurich Financial Services about an extension of the term of its existing contract.

Associated British Foods rebounded 2.7 per cent in heavy volume after Evolution Securities upgraded the owner of discount fashion retailer Primark to “buy” from “neutral”.

The stock lost 5.9 per cent on Monday after it reported a slowdown in growth at Primark, a major driver of its performance.

FTSE 100 companies are expected to post a 21 per cent increase in earnings in 2011 after an estimated 55.2 per cent rise last year, Thomson Reuters I/B/E/S showed. That compares with an estimate of 15.7 per cent earnings growth for Stoxx Europe 600 companies this year and 14.5 per cent for US SP 500 companies.

But the UK index, with a one-year forward price-to-earnings of 10.5 times, is cheaper than the other two indexes, Thomson Reuters Datastream showed. The Stoxx Europe 600 has a 12-month forwards P/E of 11.1 times, while the SP 500 is at 13.5. – (Reuters)