Market Report: Another peak, but BAe misses the celebrations

SHARES surged to yet another peak but British Aerospace, one of the best-performing shares of the year, seems determined to miss the traditional Christmas party.

The shares dropped 8p to 387p in brisk trading. They have fallen 34p this week as the rest of the stock market has stormed ahead, with the FT-SE index up more than 75 points.

BAe has climbed from 165p this year as the once-seemingly crippled group enjoyed an unexpected new lease of life under John Cahill, pulled in as chairman to rescue one of the biggest names in British engineering.

But there are now worries that the Cahill revolution has run out of steam.

He spectacularly reshaped BAe but appears to have stumbled over a crucial deal involving Taiwan. It now seems certain that a link with Taiwan Aerospace Corporation to jointly produce business jets has been killed, with both sides offering excuses.

The Taiwanese found it difficult to raise the necessary finance, which may have been related to an alleged reluctance by BAe to provide all the technical information the TAC felt it was entitled to receive.

BAe has since pinned its hopes on an Indonesian deal that has also failed to reach fruition.

Talks of a Rover link with BMW, the German group, have remained garaged and the market has grown increasingly worried that huge write-offs are likely to materialise with the next set of results. Profit forecasts for the year ending this month have been scaled down. But hopes still stretch to pounds 90m. Up to pounds 200m is expected next year.

The rest of the market was oblivious to the turbulence at BAe. The FT-SE 100 index was at one time riding at an astonishing 3,350.8, with many wondering if the 3,500 year-end target of Nomura's ultra-bull, Nicholas Knight, will be realised.

It may yet. But the inevitable profit-taking on the not-surprising basis that the Christmas account was actually going crackers left the index up 25.9 at 3,337.1, another high. The supporting FT 250 joined the romp - up 17.6 at 3,691.7, its sixth consecutive peak.

Trading was again hectic, with turnover topping the one billion mark. There was evidence that many UK institutions, facing year-end trustee meetings, had felt the inclination to add to their holdings. Overseas institutions remain attracted to the London market, encouraged by the simple fact that the UK is perceived to be politically safe.

The private investor, once an endangered species, is also a much more potent force, with the low investment returns available from many traditional savings avenues prompting a switch into equities.

For example utilities, despite their recent heady progress, still offer a much better return than the average building society investment. With interest rates certain to fall, some still expect a cut before Christmas, and the appeal of many savings accounts continues to deteriorate.

But, of course, technical factors are making a significant contribution to the market's remarkable strength. Market-makers are desperately short of stock and their hopes that the expiry of the December option series would help to relieve the squeeze were quickly dashed.

Stocks sensitive to interest rates remained in demand. But it was the prospect of corporate action that inspired a 1.75p gain to 20.5p by Signet, the old Ratners jewellery chain, which is now, as they say, under new management.

The shares have been dogged by rumours that Christmas trading has fallen below expectations. They have retreated from 40.25p this year. But the increasing presence of a South African duo, Julian Treger and Brian Myerson, who were deeply involved in the revised Greycoat property rescue, is creating the excitement.

Kingfisher has had a depressing time as the market awaited the results from its French off-shoot, Darty. In the event the figures were a shade better than expected, and the shares recovered 7p to 717p.

Asda, on its results, was at one time up 4p. The shares closed just 1p higher 56p.

Some insurance shares remained under the weather, with Legal & General off 4p at 501p.

There were strange goings-on in the rights issue candidate Tadpole Technology as Lehman Brothers started market-making in the stock. In heavy trading, with talk of stock on offer from IBM, the shares jumped 24p to 265p.

Energy shares were strong, with British Petroleum up a further 5.5p to 248p. British Gas, however, lost 3p to 357p on its restructuring plans.

Micro Focus suffered another bruising session. The shares fell 80p to 905p, still worried by unimpressive investment meetings. They have come down from 3,013p this year.

Trafalgar House fell 4.5p to 76.5p as the preference conversion price was fixed at 90.3p.

Another day, another record. The FT-SE 100 index ended 25.9 points higher at 3,337.1 and the FT-SE 250 index rose 17.6 to 3,691.7. Turnover reached 1,015.6 million shares with 38,153 deals. The account ends on 31 December with settlement on 10 January.

Europe Energy spurted 5.25p to 12.75p as a new management team moved in, accompanied by a pounds 1.8m rights isue. Gerald Davison, who used to run the Keep Trust garage group, and a management team will hold 8.5 per cent following the cash call. EE is a small coal miner but is expected to widen its operations once the new team and cash call proceeds are in place.

Horace Clarkson, the shipping and insurance group, rose 6p to 113p. It should be a beneficiary of any expansion in world trade. The Shipbuilders Association of Japan has even suggested world demand for shipping could more than double up to 1996. Clarkson's profits have fallen sharply in recent years but an interim revival suggests it is already recapturing its old buoyancy.