By Carla Mozee, MarketWatch Stay underweight U.K. stocks, says
Morgan Stanley
LONDON (MarketWatch) -- U.K. stocks were pulled lower Monday,
led by losses for natural resource producers following
disappointing Chinese data and on fallout from inaction in the oil
industry by the Organization of the Petroleum Exporting
Countries.
U.S. crude-oil futures (CLF5) posted mild gains but still
hovered near their lowest level in more than four years, leaving
oil stocks to take another beating after OPEC on Thursday failed to
agree to an output cut. Read: OPEC might get the last laugh on
oil.
Tullow Oil PLC dropped the most on the FTSE 100, losing 6% as
the shares were downgraded at J.P. Morgan Cazenove to neutral from
overweight. Energy engineering firm Weir Group PLC lost 2.5% and BP
PLC ended 1.4% lower.
Oil issues along with mining stocks felt the weight of soft
manufacturing data from China, a major buyer of commodities. HSBC
said its China purchasing managers index fell to a six-month low of
50.0 in November. Meanwhile, China's official PMI fell to 50.3, the
lowest level since March. In the mining group, BHP Billiton PLC
(BHP) declined 2.2%, Anglo American PLC lost 1.3% and Rio Tinto PLC
(RIO) fell 1.2%.
But marking a turnaround were shares of BG Group PLC as they
finished up 0.5%. The oil and gas services provider has decided to
cut the planned pay package for incoming chief executive Helge Lund
by roughly 53% to about 4.7 million pounds ($7.35 million). The
move comes after shareholders pushed back on the size of the
compensation deal.
The FTSE 100 dropped 1.1% to 6,656.37, wiping out last week's
rise of 0.4%.
On the FTSE 250 index, shares of Balfour Beatty PLC jumped 4.3%
after John Laing Infrastructure Fund Ltd. made a GBP1 billion bid
($1.57 billion) for the construction company's investment arm.
Investors in U.K. stocks should remain underweight against the
European market as the underperformance in U.K. earnings and equity
prices this year looks set to continue, said Morgan Stanley, as
part its 2015 strategy released Monday. Per-share earnings are
likely to rise 4% next year compared with growth of 10% for the
wider European market. "Sector composition is part of the problem"
as commodity sectors account for 24% of the U.K market versus 16%
for broader Europe market, said Morgan Stanley. Read about Morgan
Stanley's outlook for central banks in 2015.
Sterling: As for the pound (GBPUSD), HSBC said it's become even
more bearish than before as the currency faces the issues of a
later-than-anticipated rise in U.K. interest rates, heightened
political risk ahead of the May 2015 general election and
imbalances on both the trade and fiscal fronts. "This potent
cocktail of cyclical, political and structural drivers should
ensure GBP remains on wobbly legs beyond the festive season, with
further weakness likely to ensure the consensus is once again too
upbeat," wrote HSBC strategist David Bloom in a report Monday.
HSBC expects the pound to finish 2015 at $1.48 versus its
previous forecast of $1.55, and further weakening in 2016 to
$1.45.
The pound on Monday gained ground following data released Monday
showing the U.K. manufacturing sector expanded in November. The
pound bought $1.5734 compared with $1.5683 ahead of the data.
Markit and the Chartered Institute of Procurement & Supply said
their manufacturing purchasing manufacturers index rose to a
four-month high of 53.5 in November. Analysts had widely expected a
reading of 53.0.
"The domestic market is this month's stimulus of growth,
supporting continued stability and a good level of confidence,"
said David Noble, group chief executive at CIPS, in a statement
"Though progress is not as robust as in the first half of the year,
balance is being restored as output, orders and employment levels
all rise at moderate if unexciting rates."
The manufacturing report came ahead of Wednesday's Autumn
Statement, to be delivered by Treasury chief George Osborne
"against a background of a recovering U.K. economy, but a continued
deterioration in the fiscal position," said Ian Williams, economist
at Peel Hunt, in a Monday note.
Net borrowing by the government is running ahead of forecasts,
and higher than last year's level, largely because of a shortfall
in tax receipts as wage growth lags broader improvement in
activity," wrote Williams.
You're invited: A free evening event focusing on investing
opportunities in Europe
Will you be in London on Dec. 3? Then you're invited to our
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joined by Mark Hulbert, MarketWatch columnist and editor of the
Hulbert Financial Digest.
This event is free, but RSVPs are required. It will be held
Wednesday evening, Dec. 3, in London. For more information or to
RSVP, send an email to marketwatchevent@wsj.com.
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