Market Report: Bargain-hunters take shine to miners

Bargain-hunters who began their spending spree on Thursday afternoon continued yesterday, and decided mining stocks were still a snip as they piled in. The gold miner Randgold Resources was shining toward the top of the benchmark index and added 122p to 4,881p, while Vedanta Resources put on 27p to 1,212p.

The spend on miners was encouraged by metal experts at Citi who moved their stance on the sector from bearish to neutral. Citi increased its short-term stance on metal and mining, and said that although there are few bullish signs, its lead indicator on China had turned positive, and could make for a better outlook for the sector later in the year.

Liberum Capital's scribblers also took a look at the sector and questioned whether the rally was a "blip or time for rotation?" The move to buy mining stocks has bucked the trend of "underperformance since the start of the year", they said, which had resulted in the sector losing, on average, 20 per cent, compared to the broader market 's gains of 7 per cent.

Top of the pile was Glencore Xstrata, 9.8p better off at 315.9p. It has signed a new $17.3bn (£11.1bn) revolving credit facility.

Polymetal, which is about to leave the blue-chip index, added 10.5p to 649.5p, although brokers at Société Générale downgraded the stock.

In the wider market, the FTSE 100 only just kept itself in positive territory and added 3.63 points to 6,308.26. Matt Basi, head of UK sales trading at CMC Markets UK, said: "Popular opinion seems to be swaying back to the view that Fed tapering will be a drawn-out process, and that any knee-jerk withdrawal of stimulus is highly unlikely. Speculation over next week's Fed policy meeting made for an afternoon of gossip-fuelled trading."

But talk of a real recovery could still be too early as the blue-chip index is still back at April levels.

Along with miners, property stocks were back in favour, with Hammerson up 10.5p to 507p, helped up by rising bonds – property tends to do well during when bond yields rise. However the property expert Mike Prew, at Jefferies, continues to raise his concerns about the potential growth for Reits (Real Estate Investment Trusts). He recently declared that Reits are on the "financial rack" as the "global quantitative easing placebo effect is fading". He reiterated his view in the trade magazine Property Week yesterday, and said: "Margins are at their maximum, development momentum is likely to run off slightly and figures might be embellished by some optimistic assumptions."

Meanwhile Jefferies' scribblers are keen on the taxpayer-owned Royal Bank of Scotland. The bank was out of favour on Thursday after news that chief executive Stephen Hester had been eased out. But brokers at Jefferies were happy to come out in favour of the bank. They rate the troubled lender a buy after considering the case for its privatisation before the next election. "Granting RBS and Lloyds commercial freedom would be of great systemic benefit and trigger a virtuous circle for each bank on both fundamental and technical factors," the broker said.

"Our research concludes that RBS has theoretical capacity to redeploy up to £94bn from its liquidity portfolio into more profitable lending activity. If there is trapped liquidity, so there is trapped capital, and we estimate that between a potential citizens' float and release of UK retail loan loss reserves, the group has £3.7bn of easily tapped contingent capital." It recovered 1p to 316p.

The engine maker Rolls-Royce started its engine after an enthusiastic upgrade from brokers at Investec, which helped its shares to move 2p to 1,169p.

Investec's brokers said: "Rolls-Royce's long-term and highly visible growth story is understood by the market. However, we argue its power, in terms of earnings potential, is under-appreciated. The business is characterised by long product cycles, and we believe that a combination of strong growth in volumes and cost reductions will increasingly drive the group's financial performance to consistent year-on-year highs for the foreseeable future."

The mid-cap dweller Ted Baker was in fashion, up 31p to 1,471p, ahead of its trading update next week. But Panmure Gordon thinks the fashion brand looks fully valued relative to UK peers Next and Supergroup. Panmure rates it a hold, with a 1,411p price target, but admit that it trades lower than global peers Ralph Lauren, Tod's, H&M and Inditex, which be used to "justify a buy rating" although the macro environment "is not encouraging for this".

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