LONDON MARKET MIDDAY: Prices Mixed As Standard Chartered Shares Sink

LONDON (Alliance News) - London stocks were mixed Tuesday midday, with shares in Standard Chartered digging a hole after it announced a rights issue, slashed its dividend and reported a swing to loss in its third-quarter, while Wall Street was seen lower, giving back some of the gains made on Monday.

The FTSE 100 index was down 0.2% at 6,351.62 points, the FTSE 250 was flat at 17,163.83, and the AIM All-Share was up 0.5% at 743.23. In Europe, the CAC 40 index in Paris was flat, and the DAX 30 in Frankfurt was down 0.3%.

US stock futures pointed down, with the Dow 30, the S&P 500 and the Nasdaq 100 all seen down 0.2%. The open in the red comes after a positive close Monday, when the Dow rose 0.9%, the S&P gained 1.2% and the Nasdaq Composite added 1.5%.

In the US economic calendar, the Redbook is scheduled for 1355 GMT, ahead of the ISM New York index at 1445 GMT and US factory orders at 1500 GMT. The US economic optimism index, released by The Investor's Business Daily TechnoMetrica Institute of Policy and Politcs, also is released at 1500 GMT.

Investors also will be keeping a close eye on a speech in Frankfurt by European Central Bank President Mario Draghi after the London closing bell at 1900 GMT.

The UK construction sector continued its solid pace of expansion in October, helped by the fastest rise in new work in a year, survey data from Markit Economics and the Chartered Institute of Procurement & Supply showed Tuesday.

However, the Markit/CIPS UK Construction Purchasing Managers' Index fell to 58.8 in October from 59.9 in September, a figure that matched economists' expectations. A PMI reading above 50 indicates growth in activity.

The latest survey marked two-and-a-half years of sustained output growth across the UK construction sector, Markit said. The survey also showed that construction sector employment grew the most since November 2014.

“Another relatively buoyant construction PMI reading indicates that the sector remains in rude health," said Tim Moore, senior economist at Markit. "Rather than acting as a drag on the economy, as suggested by recent [UK] gross domestic product estimates, the sector is continuing to act as an important driving force behind the ongoing UK economic upturn."

Chinese stocks also ended mixed, with the Hang Seng in Hong Kong up 0.9% but the Shanghai Composite down 0.3%. Tokyo was closed due to the Culture Day celebration.

Chinese President Xi Jinping said at a meeting of the Communist Party on Tuesday that the Asian giant's annual economic growth rate should be at least 6.5% for the next five years. Xi's remarks followed state media reports last week that said China was planning an economic growth target of 6.5% in its next 5-year plan. China's economy grew 6.9% year-on-year in the third quarter of 2015, below the 7% target that the government has set for the whole of 2015.

On the London Stock Exchange, Standard Chartered shares crashed to the bottom of the blue-chip index, while housebuilders and oil companies were pushing in opposite directions. The first group was taking a hit after several downgrades in the sector by Liberum, while the latter were benefiting from a rise in commodities prices.

Standard Chartered, down 8.9%, said it will raise GBP3.3 billion in a rights issue and axe its final dividend for 2015 to strengthen its balance sheet, as the emerging markets-focused bank reported that it swung to a third-quarter loss on a jump in impairment charges.

The two-for-seven rights issue is designed to increase the group's common equity tier one capital ratio, a key measure of financial strength, to 13.1% on June 30 levels from 11.5%. The bank said it intends to issue additional tier one securities to build its capital levels over time.

The issue price of the rights issue has been set at 465 pence, a 35% discount to the Monday's closing price of 713.60p. The stock was quoted at midday at 650.60p. The rights issue is fully underwritten. The bank said that Singapore's Temasek Holdings, its largest shareholder, will take up its rights for 15.8% of existing share capital.

Societe Generale analyst James Invine called the update "weak". He said "it is difficult to assess consensus for an item like a capital increase, but we think the rights issue size is about in line with expectations". SocGen kept a Hold stance on Standard Chartered.

Meanwhile, Investec put its recommendation on Standard Chartered Under Review from Hold, calling the bank's update "awful". The broker said it also has put its earning-per-share forecasts under review, adding that it expects consensus to "rebase sharply lower once the detail of today's Strategic Review has been absorbed."

Housebuilders Taylor Wimpey, Barratt Developments and Persimmon were down 4.1%, 3.9% and 2.6%, respectively, after Liberum cut its recommendation on all of them to Sell from Hold.

The broker said the investment case for the largest UK housebuilders is "not as positive as is widely supposed" as "house prices, margins and returns will not keep moving up forever".

"We agree that the outlook is broadly supportive, but we do not believe that these optimistic valuations can withstand the gross margin pressure that we expect in the coming years," said Liberum. "We believe that house price inflation will be suppressed by a more vigilant regulator and build cost inflation returns."

Meanwhile, oil-related companies were higher, with BG Group up 1.3% and Royal Dutch Shell 'B' shares up 0.9%. The latter upgraded its cost synergy targets from its proposed acquisition of BG by USD1.0 billion to USD3.5 billion. It said the merger is on track to complete in early 2016.

Oil stocks also were benefiting from a rise in Brent oil prices, which was at USD49.24 a barrel, having touched an intraday low of USD48.44. Blue-chip BP was up 1.0%, while mid-caps Tullow Oil and Premier Oil were up 12% and 6.2%, respectively.

In AIM, Lansdowne Oil & Gas was up 24%. Lansdowne and partner Providence Resources said a two-year extension has been granted on the licence covering the Barryroe oil field in Ireland. Providence's Exola subsidiary has an 80% stake in the licence and is the operator, while Lansdowne owns a 20% stake. Providence Resources shares were down 1.7%.

LGO Energy was down 16%. The oil and gas company said it has hired advisers to sound out potential strategic investors as it looks to bridge the funding gap it faces following the loss of the GY-678 well at the Goudron field in Trinidad.

LGO said delays have now occurred in the settlement of the remaining capital costs for its recent drilling programme, amounting to around USD4.0 million. LGO said it will need BNP Paribas, its lender, to approve the release of specific funds previously drawn down by the company.

By Daniel Ruiz; danielruiz@alliancenews.com

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