Black Lady's red rag to the bulls

Francesco Guerrera

WILL other fund managers follow the lead of the "Black Lady" and start dumping UK equities in anticipation of a sharp stock market correction? The question has been engaging the best brains in the Square Mile ever since Tuesday, when the top fund manager Scottish Widows, known as the Black Lady, sold about pounds 450m worth of shares.

The memory goes back to 1987, when the Scottish fund manager offloaded a similar amount of equity just before the stock market crash. A coincidence - or are we in for another correction?

Scottish Widows insists that the move was not a vote of non-confidence in the Footsie and points out that, unlike 1987, this time around they did not switch their funds into bonds, but kept them in the Footsie, albeit in the form of future contracts.

Other fund managers note that such a large-sale offload of equities is bound to increase nervousness and volatility in the market. However, they do not seem to believe that Scottish Widows' actions will trigger a stampede towards the exit.

According to Nicola Horlick, the star fund manager who is joint managing director at SocGen, "clearly the market is a little nervous," partly because of Scottish Widows actions, but mostly because of uncertainty over the direction of the economy.

However, she maintains that fundamentals should put a floor to any fall and believes the maximum loss in the Footsie over the next half-year or so will be no more than 200 points - not enough to get out en masse.

Bob Parker, who manages $38bn of funds for Credit Suisse Asset Management, is another exponent of the floor theory. He thinks that the slowdown in the economy, the recent string of profit warnings and, partly, Scottish's move, have unnerved the market. But he maintains that the downward trend on interest rates and the likely depreciation of sterling will cap any losses to around 5 per cent of the present value, while high levels of liquidity from institutions and retail investors will provide some upside momentum.

Michael Hughes, a director with Barings Asset Management, is also a cautious bull. He does not think other fund managers will be "rushing to do a tactical readjustment", Scottish Widows-style. He is convinced that there is still life in this market, especially if retail investors maintain the buying mood displayed so far.

This week will provide a stern tests of the bulls' convictions, with results from no less than 15 blue-chips and an interest rate decision on the calendar. With the bulk of the City convinced that rates will stay put, most of the uncertainty will come from the corporate front.

Banks will be again overrepresented, with five of them set to report their interims. HSBC, the Hong Kong-based giant, is first on the block today, with much of the attention focused on bad debt provision. Analysts are forecasting a trebling of provisions to around $660m, reflecting the worsening of the Asian crisis during the period. Profits should be down 6 per cent to around pounds 2.6bn, but much of the earnings' bad news is already in the share price.

Similar problems will crop up on Wednesday in Standard Chartered's results, with the Asia-hit profits expected to come in 10 per cent lower at around pounds 400m.

Among the domestic banks, Barclays and NatWest will capture most of the attention, not least because of the ever-present talk of a merger. NatWest's figures, out tomorrow, should show a rise in profits to slightly more than pounds 800m.

Watch out for improved performance at NatWest UK and Greenwich NatWest and for some progress in reducing expenses in the rest of the group.

It is Barclays' turn on Thursday and it should be looking much leaner and fitter than a year ago. The ambition to become a huge global player is long gone and what is left is a healthy focus on the core business.

The downsizing of BZW, its investment banking arm is also completed, while the core UK retail operations are expected to show good income growth. Analysts at BT Alex. Brown are shooting for a pretax of pounds 1.32bn, up from 1.27bn a year ago.

Oil is the other sector under scrutiny this week, with BP and Shell telling the world how the second quarter went. Expect long wails about the injustice of another sharp fall in oil prices. At BP net income is set to have taken a 25 per cent knock to, say, pounds 552m, while Shell should have fared slightly better with a 18 per cent fall in net income to pounds 1.69bn.

But for real fun, head for the Rank's results meeting. The company will no doubt try to talk numbers, but the City and the Press will want to know whether the Butlins-to-bingo group has received an hostile bid from venture capitalists. After fielding endless variations of the question: "Are you being taken over?", Rank's management may be able to announce that they have made a profit of around pounds 85-95m, compared with pounds 87m a year ago.

Unilever rounds off a busy week on Friday. Second quarter results should be around pounds 770m, up from pounds 746m. Expect questions on sterling's impact, ice-cream monopoly investigations, margins, and its huge cash pile.