LONDON MARKET MIDDAY: Stocks sink on Evergrande contagion fears

(Alliance News) - Stock prices in London were sharply lower at midday on Monday due to concern about the knock-on effects from the potential debt-fuelled collapse of Chinese real estate firm Evergrande, sending miners and other China-exposed firms lower.

The FTSE 100 index was down 120.36 points, or 1.7%, at 6,843.28 - its lowest level since mid-July. The mid-cap FTSE 250 index was down 345.90 points, 1.5%, at 23,313.04. The AIM All-Share index was down 19.34 points, 1.5%, at 1,256.10.

The Cboe UK 100 index was down 1.4% at 680.40. The Cboe 250 was down 1.2%, at 21,098.30. The Cboe Small Companies was 1.6% lower at 15,299.69.

In mainland Europe, the CAC 40 stock index in Paris was down 2.2% and the newly expanded DAX 40 index in Frankfurt was down 2.1%.

In Asia, the Hang Seng index in Hong Kong ended down 3.3%. Financial markets in Japan were closed on Monday for the Respect for the Aged Day holiday, while in Shanghai, the stock market was closed for the Mid-Autumn Festival.

The Hong Kong stock exchange tumbled on Monday, as Evergrande Property Services Group struggles under a mountain of debt.

The firm, one of the country's biggest property developers, warned it may not be able to repay loans and interest on its bonds - totalling more than USD300 billion - and could go under. With some payments due Monday and Thursday, investors are keeping a nervous eye on the crisis, which has fanned fears of a domestic and international contagion.

Evergrande shares closed down 11% in Hong Kong, while the wider Hang Seng index lost 3.3%.

US stock market futures were set to open sharply lower, extending Friday's losses on concerns over China's indebted property sector and ahead of the Federal Reserve's interest rate decision on Wednesday.

The Dow Jones Industrial Average was called down 1.2%, the S&P 500 down 1.0%, and the Nasdaq Composite down 1.1%.

"Markets in Europe dropped significantly on Monday as the 'risk-off' trading stance prevails ahead of another busy week on the macro front. Investors already had a lot to digest recently, the debt crisis in both of the world's two biggest economies (Evergrande & US debt ceiling) combined with uncertainties about the Federal Reserve's decision this week about the timeline for any tapering are denting market sentiment," said analysts at ActivTrades.

The US Fed starts its two-day policy meeting on Tuesday, with an announcement on Wednesday. Also issuing policy decisions this week are the Bank of Japan and Bank of England.

In the FTSE 100, Prudential was the worst performer, down 8.5%. The life insurer on Sunday said it plans to raise up to around USD2.89 billion on the Hong Kong Stock Exchange.

Prudential is planning a share offer of up to 5% of its issued share capital, or around 130.8 million shares, at a price of no more than HKD172 each, equivalent to around USD22.09.

The offer will consist of an international share placing and a public offer available only to residents of Hong Kong, both at the same price. The public portion will be for up to 32.7 million of the total shares on offer.

Prudential said it wants to increase its Asian shareholder base and the liquidity of its shares in Hong Kong.

The 173-year old insurer last week completed the spinoff of US arm Jackson Financial and declared a demerger dividend. The company still owns 20% of Jackson, and plans to cut its stake to less than 10% over the next 12 months.

"Prudential is closing the book on a messy chapter, with the breakup of the American and Asian businesses now complete, it's looking to make the most of opportunities in Asia. The addressable market here is huge, so coming to the market cap-in-hand does make sense. The scale of the amount needed might be a bit disappointing, but it also adds risk. When you've asked for money, the reaction will be harsh if things don't go to plan," said Hargreaves Lansdown analyst Sophie Lund-Yates.

China-exposed bank and luxury goods maker Standard Chartered and Burberry were down 5.1% and 4.0% respectively.

Anglo American was down 9.1% after Barclays downgraded the miner to Equal Weight from Overweight.

Miners were lower across the board amid wider sector concerns, linked to China. Glencore, BHP and Rio Tinto were down 5.9%, 5.0% and 5.1% respectively.

AJ Bell's Russ Mould said the Evergrande situation is "particularly bad news for miners.

"Any downturn in China would have significant implications for commodities demand given its status as the world's largest consumer of many minerals and metals. The situation also has uncomfortable echoes of 2015 when fears about Chinese debt prompted a big and broad-based market correction."

Elsewhere, AstraZeneca was up 3.1%. The Anglo-Swedish drugmaker said its Enhertu breast cancer drug reduces risk of progression or death by 72% compared to existing treatment trastuzumab emtansine.

Noting "detailed positive results" from its Destiny-Breast03 Phase 3 trial, the company said new tests affirmed the safety and effectiveness of Enhertu. Patients treated with the new drug showed a "strong trend towards improved overall survival", AstraZeneca said.

International Consolidated Airlines Group was up 1.8%. The British Airways owner denied predictions that it will follow in easyJet's footsteps in raising money from shareholders, the Sunday Times reported.

Earlier this month, easyJet tapped investors for GBP1.2 billion in a fully underwritten rights issue to help bolster its balance sheet, as the travel sector continues to be hurt by the pandemic restrictions. Analysts at Goodbody and HSBC said they believed the IAG would follow.

But IAG Chief Executive Officer Luis Gallego denied any plans for a fundraise, telling the Sunday Times: "We do not see the necessity to do a rights issue and are not considering it."

SSE was up 0.1% after it noted a report in the Telegraph that said the energy firm was close to being split into two separate blue-chip companies, following pressure from US activist investor Elliott Management.

Elliott has been in talks with SSE's board to split the company's legacy wholesale networks business from its growing renewable energy operations for more than a year, according to the Telegraph, citing sources close to the situation.

In response, SSE said "there has been no decision to break up" the company. SSE remains fully focused on strategic choices which will "drive shareholder value from the wealth of net zero opportunities", it insisted. SSE said its strategic focus was on renewables and regulated electricity networks, supported by "carefully chosen" businesses.

London's spate of stock market listings looks set to continue. The owner of the Yo! Sushi chain of casual dining restaurants will present to City analysts this week, in preparation for an initial public offering in London as soon as mid-October, Sky News reported on Sunday.

The listing of Snowfox Group is being led by investment bankers at Numis, Sky said, and could give the company a market value of more than GBP750 million. The company also owns the Snowfox and Bento sushi chains in the US and Canada, and the Taiko brand of packaged sushi.

In addition, Eurowag on Monday confirmed plans to list on the London Main Market.

Founded in the Czech Republic in 1995 by Chief Executive Martin Vohanka, Eurowag processes toll and fuel payments for trucks around the continent.

The initial public offering is expected to comprise new shares issued by the company, raising gross proceeds of around EUR200 million to support its growth strategy, as well as the sale of existing shares.

The pound was quoted at USD1.3693 at midday on Monday, down sharply from USD1.3752 at the London equities close Friday.

The euro was priced at USD1.1714, down from USD1.1734. Against the Japanese yen, the dollar was trading at JPY109.58, down from JPY109.92.

Brent oil was quoted at USD73.91 a barrel Monday at midday, down sharply from USD75.06 late Friday. Gold stood at USD1,759.46 an ounce, slightly higher from USD1,754.70.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.