Britain's top shares edged higher on Tuesday following a three-day sell-off, drawing some strength from defensive stocks, though gains will likely be muted by concern a summit of European leaders will yet again prove disappointing.
A two-day summit in Brussels on June 28-29, to discuss the future of the euro zone, will be the 20th time EU leaders have met to try to resolve a crisis that has spread across Europe since it began in Greece in early 2010.
“There are only so many times that we can gear ourselves up for the latest big summit, the latest big announcement, only for officials to over-promise and under-deliver once again,” Henk Potts, market strategist at Barclays Wealth, said.
“On a three- to six-month view, we've been telling our clients: 'Hold more cash then you normally would, be less aggressive in terms of your stance to equity markets, and have a good weighting in terms of government bonds'.”
The FTSE 100 was up 11.97 points, or 0.2 percent, at 5,462.62 by 13:25 SA time, having shed around 3 percent in the previous three days as investors became increasingly worried about the possible impact of the euro zone debt crisis on the world economy.
Pharmaceutical shares were in demand, with Shire rising 2.1 percent, as a raft of brokers upgraded their ratings on the stock in the wake of the previous session's sharp sell-off.
Shire sank 11.3 percent on Monday after the unexpected US approval of a new generic version of its Adderall XR attention deficit hyper disorder treatment, produced by Actavis.
Societe Generale and Berenberg lifted their ratings for Shire to “buy”. Panmure Gordon raised its recommendation to “hold”.
“Although the full impact of the Adderall XR genericisation is not yet known, we believe the risk is now adequately reflected in the share price,” Panmure said in a note.
“However, Shire is a good growth stock with FY2011-2014 CAGR (compound annual growth rate) of 16.5 percent compared to its peers of 12.7 percent and the large-cap sector of 3.8 percent. As such the stock deserves to trade at a premium to its peers.”
EURO ZONE JITTERS
The euro zone crisis escalated on Monday when credit rating agency Moody's downgraded the ratings of 28 Spanish banks after a cut to Spain's sovereign rating to just above junk status earlier this month.
At the summit, European leaders are set to discuss specific steps towards a cross-border banking union, closer fiscal integration and the possibility of a debt redemption fund.
“Hopes are that this week's EU summit will produce some progress of federalising the euro zone, but getting 17 different groups of politicians to agree on any subject would be hard enough,” Darren Sinden, senior sales trader at Silverwind Securities, said.
The anxious mood was made worse by UK public borrowing which came in higher than expected in May as income tax receipts fell and spending rose, in a sign the government may face a struggle to meet its debt reduction target as the economy weakens.
Among individual movers, Croda International advanced 3.1 percent after JP Morgan raised the stock to “overweight” from “neutral” and increased its price target to 2,600 pence from 2,220.
British online supermarket Ocado fell 16.4 percent after saying trade in its third quarter was disrupted by celebrations to mark Queen Elizabeth II's Diamond Jubilee as it posted a 4.5 percent rise in underlying first half earnings. - Reuters