LONDON MARKET: Stocks rise too far, too fast, say investors
Sunday 14 March 1999
The FT-SE 100 reached a record last week but investors said stocks rose too far, too fast. "Everything rational suggests it's not sustainable," said Brennan Hiorns at Taylor Young Investment Management. "The institutions are sitting on piles of cash and they are prepared to pay the prices, and that gives the market its base. Everything makes you feel it's far too high."
The FT-SE 100 index rose 1.24 per cent to 6,282.2, after hitting a record high of 6,365.4. Oil companies gained on hopes that oil-producing nations will cut back their output, halting the slide in crude oil prices that's hobbled profits of oil companies.
"I wouldn't be a long-term buyer of either BP or Shell," said Mr Hiorns. "What if they don't cut production?" Oil ministers from five oil-producing countries agreed to cut supply by more than 2 million barrels a day but producers complied with only three-quarters of cuts promised last year.
Still, the amount of cash being returned to shareholders could mean that investors are compelled to plow it back into the market. Shell is buying back up to 5 per cent of its own stock. and Unilever is paying $8bn (pounds 4.9bn) in special dividends. "Investors are all being given money back by the fistful, and the money's got to go somewhere," said Simon Toynbee, a fund manager at Majedie Investments. "The UK is playing catch up; nobody dares sell."
Gilts may rise as reports on wages and economic growth bolster expectations the Bank of England's Monetary Policy Committee will cut interest rates again. The yield on the benchmark 10-year gilt is 4.54 per cent. "Pay growth is on top of the Bank of England's interest-rate agenda," said Richard Iley, an economist at ABN Amro Bank. "There's growing evidence that pay pressures are subsiding quite quickly. This will let the MPC squeeze out a couple more rate cuts."
Other reports due this week include the February unemployment rate, retail sales and the second revision to fourth-quarter GDP. "There's room for another cut," said Mark Parry, at Hill Samuel Asset Management. While the economy is slowing "it's not as miserable as it might be, so rates won't go to 3 per cent."
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