FTSE rebounds as recovery from virus sell-off gathers strength

Update: The FTSE 100 has rebounded from yesterday’s heavy sell-off, as a recovery rally gathered strength during the day.

The UK blue-chip index closed 69 points, or 0.9% higher at 7,481, with stocks gaining a boost from a strong market open in the US. The Dow Jones rose 0.8% while the broader S&P 500 index was up 1.1%.

That has helped to claw back some of the heavy losses for stock markets yesterday, amid fears over the spread of the coronavirus in China.

‘Stock markets in Europe have pulled back some of the ground that was lost yesterday,’ said David Madden, market analyst at CMC Markets UK.

‘The positive move in equities is probably due to short covering plus bargain hunting as the health crisis has deepened,’ he added.

(12:36) FTSE edges higher after sell-off 

The FTSE 100 has clawed back a small portion of yesterday’s heavy losses sparked by fears over the spread of the coronavirus in China.

The UK blue-chip index rose 18 points, or 0.2%, to 7,430 after yesterday’s 188-point, 2.4% fall.

Neil Wilson, analyst at Markets.com, said global equity markets ‘were still rocking’ despite some ‘relief early doors for Europe’ as investors wait for more news on the coronavirus outbreak. The flu-like virus has so far claimed 106 lives, infected more than 4,500, and forced Chinese authorities to quarantine millions of citizens in dozens of cities by placing them under travel restrictions.

‘The problem is investors have very limited visibility of the current situation in China, have virtually zero knowledge of epidemiology and virology, and have no clue how bad it will get or lasting the impact will be,’ he said.

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Luxury fashion brand Burberry (BRBY), which relies on China for a large percentage of its sales, fell to the bottom of the FTSE 100, losing 2.3%, or 46.5p, to trade at £19.52.

Shares in British Airways owner International Airlines Group (IAG) continued to slide amid fears over the impact of the coronavirus on the travel sector, dropping 1.3% to 579.4p.

With the number of virus cases growing rapidly, China’s government has already tightened restrictions on when people can return to work after the new year holiday and Shanghai is reportedly banning companies from restarting operations until 9 February, while foreign carmakers are pulling staff out of regions.

‘We know there will be an impact on consumption, but if factories are kept shut we will also see a downturn in output in the first quarter,’ said Wilson.

‘The risk for the Chinese – and by implication the global economy – is that the lockdown across much of China persists for a longer time than currently anticipated, crippling output as well as consumption.’

Investors fear the coronavirus could have a similar impact on China’s economy as the outbreak of severe acute respiratory syndrome (Sars) in 2002, which is estimated to have wiped 1% off China’s growth.

The more domestically-focused ‘mid-cap’ FTSE 250, provided better news, as drinks manufacturer AG Barr (BAG) provided a positive update after a shock profit warning last year.

The maker of Irn-Bru and Rubicon drinks regained some of its fizz, reporting that full-year profit was expected to be at the top end of expectations, sending the shares up 13%, or 71p, to 615p.

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AJ Bell analyst Russ Mould said although the ‘backdrop remains difficult’ the company now benefiting from a ‘strong balance sheet, underpinned by robust cash generation, enduring brand, settled management, and a best-in-class manufacturing base’.

AG Barr’s well-received update will also be a relief to fund manager Nick Train, who owns 14% of the company via his funds.

The manager said in his latest update to investors in his Lindsell Train UK Equity that the Irn-Bru maker was one of two ‘shockers’ in 2019, alongside Pearson (PSON).

Train’s Lindsell Train (LTI) investment trust, which holds half of its assets in Lindsell Train Limited, the private fund management business co-founded by the star manager, was among the ‘small-cap’ risers, up 2.9% at £1,225.



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