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LONDON MARKET CLOSE: Stocks Mixed As China Cracks Down On Hong Kong

Fri, 22nd May 2020 17:22

(Alliance News) - Stocks in London ended mixed on Friday ahead of the long holiday weekend amid concerns about growth in China and as the Asian country moved to impose a new national-security law on Hong Kong.

Pro-democracy campaigners in Hong Kong vowed Friday to take to the streets in protest over what they said was China's fiercest assault on the city's treasured autonomy with its move to impose a security law.

The proposal for the legislation - expected to ban treason, subversion and sedition - was introduced into China's rubber-stamp parliament at the opening of its annual session on Friday morning.

It followed repeated warnings from China's communist leaders they would no longer tolerate dissent in Hong Kong, a semi-autonomous city that endured seven months of massive pro-democracy protests last year.

On the first day of its parliament, China unveiled proposals to strengthen "enforcement mechanisms" in Hong Kong, after the city was last year rocked by seven months of massive - and sometimes violent - pro-democracy protests.

There was criticism from Washington regarding the latest move, with the US State Department saying it would be "highly destabilising, and would be met with strong condemnation from the US and the international community".

Compounding investor concerns, China took the rare move of not setting an annual growth target this year after the coronavirus battered the world's second-largest economy and ravaged global growth.

The FTSE 100 index closed down 21.97 points, or 0.4%, at 5,993.28, but ended the week up 4.4%.

The FTSE 250 closed up 12.90 points, or 0.1%, at 16,398.86, ending the week up 6.4%. The AIM All-Share closed up 3.92 points, or 0.5%, at 843.17, ending the week up 5.3%.

The Cboe UK 100 ended down 0.4% at 10,134.86, the Cboe UK 250 closed up 0.1% at 13,957.55 and the Cboe Small Companies ended up 0.6% at 8,907.53.

In Paris, the CAC 40 ended flat, while the DAX 30 in Frankfurt ended down 0.1%.

CMC Markets analyst David Madden said: "The FTSE 100 is underperforming against its Continental counterparts as US-China tensions rise. Beijing are keen to tighten their grip on Hong Kong which is why the Chinese government are set to impose a national security law on the district. Last year there was protests and civil unrest in the territory as the Beijing administration were trying to put Hong Kong further under its influence.

"The latest development is likely to trigger protests. President Trump effectively sided with Hong Kong last year so he is likely to do the same if the situation escalates, and that might renew US-China trade tensions, which is why equity traders are a little nervous".

In the FTSE 100, Burberry Group ended up 3.3% after reporting annual results that beat market expectations, despite the fashion house scrapping its full-year dividend as sales plunged because of the Covid-19 lockdown.

For the 52 weeks ended March 28, revenue came in at GBP2.63 billion, down 3.3% from GBP2.72 billion the year prior. The figure was slightly ahead of the company-compiled consensus estimate of GBP2.62 billion.

Pretax profit dropped to GBP168.5 million from GBP440.6 million year-on-year. Adjusted operating profit fell 1.0% to GBP433 million from GBP438 million, but was ahead of the consensus estimate of GBP337 million.

Given "current uncertainty", Burberry followed many other listed companies in skipping its final dividend, meaning its full-year payout dropped 73% to just 11.3 pence, having paid 42.5p a year earlier. The luxury retailer said future dividend payments will be reviewed at the end of financial 2021.

Further, Burberry expressed confidence in the strength of the brand and was encouraged by the recovery it is experiencing in Mainland China and Korea. The 164-year-old firm said cumulative sales in both of these markets since the beginning of April are ahead of the prior year.

"Despite a dividend cut, investors have now priced this in as now the norm and some encouragement will be taken from the most recent update on trading activity in the Far East where April sales are ahead of the prior year. However, Burberry is naturally cautious about the upcoming year; half of its stores are currently closed so 2021 will have got off to a bad start, which is where its digital platform becomes ever more important," analysts at the Share Centre said.

At the other end of the large-cap index, Asia-focused financial services firms ended in the red amid tensions in the region, with Prudential down 9.3%, HSBC down 5.0% and Standard Chartered down 2.4%.

United Utilities closed down 4.3% after the water company warned of the "challenging backdrop" due to Covid-19, as annual profit fell.

In the year ended March 31, United Utilities recorded pretax profit of GBP303.2 million, down 30% from the GBP436.2 million seen the year before.

The utility said it took a GBP56 million hit from Covid-19. Of this, GBP32 million represents its share of Covid-19 related losses at Water Plus and a further GBP5 million of expected credit losses in relation to loans to Water Plus.

The company noted the Covid-19 outbreak will provide a "challenging backdrop" to the AMP7 regulatory period. Peer Severn Trent ended down 3.9%.

International Consolidated Airlines and easyJet ended down 7.4% and 3.0% respectively, with the UK government expected to confirm plans for anyone arriving in the UK from abroad to be fined GBP1,000 if they fail to self-isolate for 14 days.

Home Secretary Priti Patel outlined the plans - which will be introduced early next month - at the daily Downing Street briefing on Friday.

Meanwhile, the acrimonious saga between easyJet's founder Stelios Haji-Ioannou and the company's board ended on Friday with the tycoon failing in his attempt to oust four directors.

Haji-Ioannou labelled the results of the airline's general meeting on Friday as a "voting fraud", after all four of his resolutions to remove the company's senior executives including chair and chief executive officer were rejected by shareholders.

"We will never stop in our quest to out these "strawmen" and prove that these shares should not have been counted under the London Stock Exchange listing rules for related-party transactions for listed companies," the businessman added.

easyJet, which is facing a potential GBP18 billion lawsuit over customer data breach, earlier on Friday had said all resolutions put forward by Haji-Ioannou were defeated at the general meeting.

At the company's general meeting, roughly 58% of shareholders voted against the resolutions to remove Chair John Barton, Chief Executive Officer Johan Lundgren, Chief Financial Officer Andrew Findlay and Independent Non-Executive Director Andreas Bierwirth, with 42% in favour.

In the FTSE 250, AJ Bell ended the worst performer, down 15% after a group of senior managers and directors sold 1.7 million shares in the stockbroker at 448.64 pence, worth GBP7.6 million on Thursday.

The director sales came as Numis Securities on Friday confirmed that Invesco Asset Management had sold 31.0 million shares in the wealth manager at 400 pence each for a total of GBP123.9 million.

The Invesco sale was conducted by way of an accelerated bookbuild - launched Thursday - in which Numis acted as sole bookrunner. Following completion of the sale of the 7.6% stake, Invesco will hold just 1.3 million shares in AJ Bell, a 0.3% holding.

The pound was quoted at USD1.2190 at the London equities close, down sharply from USD1.2250 at the close Thursday, after dire UK retail sales data.

Retail sales in the UK fell by a record in April, following widespread store closures to combat the spread of Covid-19, the Office for National Statistics said.

The volume of retail sales in April plunged 18% versus the previous month, following a 5.2% drop in March. Year-on-year, retail volumes were down 23%.

In April, both value and volume retail measures had record declines - from 1988 when records began - the ONS said, as many stores paused trading from March 23 following official government guidance during the coronavirus pandemic.

The statistics office noted the index was last at this level in December 2005.

The euro stood at USD1.0886 at the European equities close, down sharply from USD1.1008 late Thursday.

European Central Bank governors do not expect a quick rebound from coronavirus-induced economic damage, minutes from their last meeting showed Friday, and are considering further stimulus as soon as next month.

A "swift V-shaped recovery" - in which a steep drop is followed immediately by a correspondingly sharp recovery - can "probably already be ruled out", the account of the April 30 meeting read.

ECB chief Christine Lagarde said last month that eurozone output could shrink by 5% to 12% this year as lockdown measures to contain the virus stifles economic activity, fuelling unemployment, upending international supply chains and depressing consumer demand.

The bank is due to unveil its latest quarterly growth and inflation forecasts for the 19-nation currency club at the next monetary policy meeting on June 4. With the fallout from the pandemic still highly uncertain, ECB governors expect that the June projections will be "revised down significantly".

Against the yen, the dollar was trading at JPY107.51, down from JPY107.85 late Thursday.

Stocks in New York were lower at the London equities close AS as rising US-China tensions outweighed coronavirus vaccine optimism.

The DJIA was down 0.5%, the S&P 500 index down 0.2% and the Nasdaq Composite down 0.1%.

Earlier on Friday, the White House's top infectious disease expert Anthony Fauci said in an interview with National Public Radio it was "conceivable" that the US could begin to roll out a coronavirus vaccine by December.

Brent oil was quoted at USD34.72 a barrel at the London close, sharply lower from USD36.18 at the close Thursday.

"It's been a good run for oil prices but rising US-China tensions have proven a step too far... The oil dynamics have undoubtedly improved and it passed the June expiry test with flying colours. But the outlook is still highly uncertain and numerous risks lie on the horizon, even before you taken recent tensions into consideration. There'll be nothing normal or straightforward about this recovery," said Oanda analyst Craig Erlam.

Gold was quoted at USD1,733.00 an ounce at the London equities close, lower against USD1,747.30 late Thursday.

Financial markets in the UK will be closed on Monday for the spring bank holiday, while markets in the US will also be closed on Monday to commemorate Memorial Day.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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