Market blues ahead after share prices plunge

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The Independent Online
DEALERS returning to their desks after the bank holiday face a nervous stock market and moribund demand for new share issues.

Strategists are reluctant to forecast a short-term direction for the market after the FT-SE 100 index of leading shares plunged through the psychologically important 3,000 level on Friday. However, most predict it will finish the year a few hundred points higher.

The stock market's 53.3 point fall to 2,966.4 on Friday, its lowest level since September last year, was ostensibly caused by an unexpected upwards revision in US GDP figures. The FT-SE 100 index is now more than 500 points below its February peak of 3,520.3.

But Paul Walton, UK strategist at James Capel, said there was little selling in the stock market, and that the lead came from the financial futures markets. 'This is all the fault of those men in nice coloured jackets in the futures market. I think it is an absolute disgrace. The futures market is leading the cash market all over the place,' he said.

One new issue specialist at a merchant bank said it was likely that some of the many planned new issues would be postponed because the market had fallen so far. But corporate financiers would wait until the last minute before taking any decision. 'Lots of floats have been postponed until autumn, but in my view the autumn will never come,' he said.

Two cable companies, TeleWest and General Cable, and a property investment company, London Capital Holdings, postponed their flotations last week.

One fund manager said that while new issues were of good quality earlier in the year but tended to be overpriced, they were now more correctly priced but tended to be of bad quality.

Strategists said that some large international investors, including hedge funds, had been selling some of their exposure to UK shares through the futures market on Friday.

Mark Brown, head of strategy and economics at Hoare Govett, said: 'We do not have a proper market at the moment. Investors are very nervous. They are not prepared to back their fundamental views, and the market is being driven easily by the futures.' Mr Brown predicted that the market would bounce back this week. But he described this as a not very confident prediction.

Mr Walton believes that with low interest rates, strong institutional cashflow and healthy earnings growth, share prices should be much higher than they are. He is sticking by his prediction that the FT-SE 100 index will reach 3,750 by the year-end.

City & Business, page 2

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