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Does FTSE 100 deserve to trade at three-month low?
By Lee Wild | Fri, 11th August 2017 - 12:49
Forget Mayweather vs McGregor. Trump vs Kim Jong-un is the fight everyone's talking about. Unfortunately, and unlike the upcoming cross-code boxing match, the latter could end in more than a bloody nose. It's why global stockmarkets have turned tail this week to prices not seen in three months.
And it's all happened very quickly. The FTSE 100 (UKX) closed Tuesday at 7,551, less than 50 points short of a new record high. It's currently at 7,297, down 2.8% from 7,511 at the end of last week, and below 7,300 for the first time since early May.
Our technical analyst Alistair Strang said today a move below 7,315 could trigger a dive to 7,210. Before that there's the 200-day moving average, currently at 7,242, then the 23% Fibonacci retracement from the June high to February 2016 low.
But is the sell-off overdone? Yes, valuations in some places looked stretched - the FTSE 100 trades on around 14 times forward earnings estimates - but not to breaking point (the S&P 500 trades on 16.8), and, as we keep saying, there are few alternatives to equities in this low interest rate environment.
Of course, if North Korea does manage to fix a nuclear warhead to one of its unpredictable rockets, markets will crash, and not by just a few hundred points!
It's why the VIX index, the so-called 'fear gauge', has doubled in the past couple of days to its highest since the US election. However, and despite the fiery rhetoric, the odds of Kim launching missiles at Guam are small. He may be a chaotic despot, but he's not suicidal. Maybe that's why the VIX still trades below 20, its historical average.
Still, miners fell out of fashion during the second half of the week, led lower by Glencore (GLEN), Rio Tinto (RIO), Anglo American (AAL) and Antofagasta (ANTO), despite higher copper prices on Chinese threats of import restrictions. Blame a weaker dollar.
Geo-political unease has triggered a wave of profit-taking, but company-specific events have caused wobbles, too.
Results from support services star G4S (GFS) came unstuck despite results moderately ahead of expectations.
The blow to confidence was caused by uncertainty over the outlook for its operations in emerging markets, with G4S revenues in the Middle East and India down 7.8% due to lower oil prices in the Gulf and the impact of India's demonetisation programme.
Having doubled in price since the EU referendum, G4S shares are down almost 10% in the past few days.
BT (BT.A) is tipped by broker Barclays to hit 450p in time. It won't be any time soon judging by recent trading activity. Last month's first-quarter results were OK, and technical analysis gives a favourable outcome, but the shares are now back below 300p.
So, where do investors think their money is safest from nuclear Armageddon? Well, Randgold Resources (RRS) and Fresnillo (FRES) are both up around 4% since Tuesday's close. Who doesn't love gold in a crisis?
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
|RANDGOLD RESOURCES LTD||7,395.00p||-1.27%|
|UNITED UTILITIES GROUP||842.00p||-0.18%|
|All data 15min delayed as of: 20:47:25 21/10/17|