Bloomberg News

U.K. Stocks Drop as World Bank Forecasts Contraction

January 16, 2013

U.K. stocks fell as the World Bank predicted that the economy of the euro area will contract in 2013, while Jean-Claude Juncker said the strength of the single currency threatened the region’s growth.

Anglo American Plc (AAL) dropped 3.1 percent as the African National Congress said South Africa’s government should withdraw the company’s platinum licenses. Tesco Plc (TSCO) slid 0.7 percent after tests found horse DNA in its beef burgers. Vodafone Group Plc slipped 1.8 percent after Deutsche Bank AG said the company probably won’t buy back more shares.

The FTSE 100 (UKX) declined 13.33 points, or 0.2 percent, to 6,103.98 at the close in London, paring an earlier slide of as much as 0.7 percent. The equity benchmark rose to its highest level since May 2008 last week amid optimism that U.S. companies’ earnings would exceed analysts’ estimates. The broader FTSE All-Share Index also fell 0.2 percent today, while Ireland’s ISEQ Index added 0.3 percent.

“Hopefully, the rehabilitation in Europe is sustained, albeit you are already beginning to price a lot of the recovery in,” said Derek Mitchell, a U.K. equity fund manager at Royal London Asset Management Ltd., which manages about $74 billion. “The market has come too far, too fast, valuations are very stretched. Last year was all about a re-rating, but we need to see earnings growth this year, and the U.S. is a good indication of what we can expect later in the U.K. market.”

The volume of shares changing hands in FTSE 100 companies was 45 percent greater than the average of the last 30 days, according to data compiled by Bloomberg. The price-earnings ratio for the FTSE 100 peaked at 15.8 times trailing earnings on Jan. 11, its highest level in two years.

World Bank

The World Bank forecast that the euro region will contract for a second consecutive year in 2013. It also projected that the global economy will expand 2.4 percent, slower than the 3 percent growth that it predicted last June.

Juncker, the leader of the group of finance ministers from the euro area, said the currency’s 8 percent gain against the U.S. dollar over the past six months posed a threat to the economies of its 17 members. He described the euro’s value as dangerously high. The currency traded above $1.34 against the dollar this week for the first time since February last year.

German Chancellor Angela Merkel’s government lowered the forecast for its own economy. Gross domestic product growth will slow to 0.4 percent this year from 0.7 percent in 2012, the Economy Ministry said in its annual report.

Chinese FDI

In China, foreign direct investment declined for the first full year since 2009 as economic growth slowed and manufacturers relocated to markets with cheaper labor. Inbound FDI fell 3.7 percent to $111.7 billion. Inflows dropped 4.5 percent in December from a year earlier to $11.7 billion, according to Ministry of Commerce data released in Beijing today.

Anglo American dropped 3.1 percent to 1,901 pence. The ANC said that the government should withdraw mining licenses from the company’s Amplats unit. The business, also known as Anglo American Platinum Ltd., said yesterday that it will idle four shafts in South Africa, cutting production of the precious metal by 400,000 ounces a year and firing as many as 14,000 workers. Workers at three mines refused to go underground today, according to a company spokeswoman.

Tesco slid 0.7 percent to 347.1 pence. The U.K.’s largest retailer withdrew two types of beef burger after the Food Safety Authority of Ireland found that some contained horse DNA.

Vodafone, Lloyds

Vodafone retreated 1.8 percent to 160 pence as Deutsche Bank lowered its recommendation on the world’s second-largest mobile-phone operator to hold from buy. The brokerage said Vodafone’s growth rate will probably deteriorate this year and its free cash flow may decline through 2014.

Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS) slipped 2.5 percent to 53 pence and 1.1 percent to 350.1 pence, respectively, following European lenders lower.

Fortune Oil Plc (FTO) rose 4.4 percent to 11.8 pence after saying that more than two-thirds of its creditors granted it a formal waiver, allowing China Gas Holdings Ltd. to buy its natural gas business.

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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