The FTSE 100 index dipped below the 6,000 mark in mid-afternoon yesterday, highlighting the poor performance of blue-chip stocks since the start of the year.
In a volatile session with a trading range of almost 200 points, Footsie fell to 5,972.7, down 95.9, at its worst. And although it edged up above 6,000 in the last few minutes to close at 6,005.2, off 63.4, the blue chip benchmark is now 13.3 per cent below its end-1999 level.
Deutsche Bank strategists, say the market has been hit by a number of factors; fear of interest rate rises, the fact that the British corporate profit outlook was not as good as elsewhere and the Vodafone deal, which is "like a monster rights issue overhanging the market". However, the bank does not expect Footsie to fall much further unless a global sell-off sets in.
ABN-Amro says that the market is going through a turbulent period of trying to figure out the peak in the rate cycle. Once the peak becomes clear, the market can recover. The bank expects a peak of around 6 per cent - and thus identifies a clear buying opportunity.
There was not much in the way of economic news to explain yesterday's sell-off. Eddie George, governor of the Bank of England, had made a rather hawkish speech about market "overshoot" on Monday night. But investors did not seem to be alarmed by this as they pushed the FTSE 100 to its best level of the day at 6,167.5 in early trading.
Inflation figures showed a rise in the annual headline rate, from 1.8 to 2 per cent, in January but a fall in the underlying rate, the measure targeted by the Bank of England. The underlying measure excludes mortgage interest payments and fell from 2.2 per cent in December to 2.1 per cent in January, well below the 2.5 per cent target.
As so often this year, the medium and small-sized stocks outperformed the FTSE 100. The FTSE 250 index closed just 10.6 down at 6,135 while the SmallCap gained 1.2 to 3,170.8. The TechMARK index jumped another 42.4 to 4,813.49 even though the tech-heavy Nasdaq index in the US was off more than 100 points in early trading.
Trading volume was heavy once again with 2.41 billion shares dealt by 6 p.m..
Footsie's decline may be attracting some buyers to the British stock market. According to the Merrill Lynch survey of fund managers, the majority now see British equities as undervalued for the first time since the emerging market crisis of October 1998. Buyers now outnumber sellers by the largest margin since last June.
The managers expect British GDP growth of 3 per cent this year and inflation to be around 2.3 per cent. Base rates are forecast to edge up to 6.4 per cent from 6 per cent. Earnings per share are seen rising by just under 10 per cent this year and dividends by 7.2 per cent.
