Footsie confounds bears to soar again

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Shares soared yesterday, dragged higher by strong futures and gilts markets, a rising oil price and early gains on Wall Street. The FTSE 100 index of leading shares enjoyed its biggest one-day rise since July 1995, jumping 64.9 points to close at 4,018.7.

Dealers said shares had been given a boost by strong bond markets around Europe and an easing in the strength of the pound, which had taken the pressure off exporting companies. They also attributed Footsie's good showing to the expiry of futures and options contracts which had forced bears to buy shares to close out their failed gambles that the market would fall.

The extent to which professional money managers have been wrongfooted by the persistent strength of the UK equity market was underlined by figures from WM, an investment performance measurement company, which showed a continuing movement out of shares and into cash by pension funds. WM's survey, which covers around 60 per cent by value of UK pension funds, showed a pounds 5.6bn increase in cash holdings in the first nine months of the year largely accounted for by the sale of pounds 6.9bn of UK equities.

The proportion of pension funds invested in UK equities has declined steadily from 58 per cent in 1992 to about 52 per cent, partly as a result of a movement into fixed-interest investments. According to WM, however, one of the striking features of this year has been the extent to which money withdrawn from UK shares has not been re-invested anywhere else.

The cautious stance popularised by Tony Dye at PDFM has been adopted by many of his peers who have chosen to focus on what are perceived to be stretched equity valuations on both sides of the Atlantic. Others now take the opposite view that an estimated pounds 10bn being held by pension funds in cash is just waiting to be injected into equities, which could give the market a sizeable post-Budget boost.

Steve Wright, an equity strategist at BZW, said the market was taking the view that the Chancellor would opt for a sensible Budget next Tuesday, possibly offsetting a pounds 3bn overall reduction in the tax burden with a pounds 4bn reduction in public spending. That would be taken favourably by gilts and shares.

He said the worst scenario was a loose Budget that attempted to use better- than-expected recent public borrowing figures as a pretext for a pre-election giveaway.

The pound also eased against the dollar and the mark, which took the pressure off exporters which have seen their products becoming uncompetitive.

Market Report, page 26

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