Market Report: Burberry enjoys gains on emerging market hopes

Burberry was in fashion on the FTSE 100 last night as investors bought in on hopes of continued demand from emerging markets. The high end retailer, known around the world its for distinctive camel, red and black check patterns, has been notching up sales thanks to continued demand for its pricey products; emerging markets have been an important driver, as Burberry hawked its coats and handbags to the swelling ranks of the newly rich in fast-growing countries like China.

Last month, it published another confident update and beat quarterly sales forecasts, though there were concerns among some about the impact of the grim state of the global economy. Ahead of the update, signs of weakness in the Chinese economy were partly responsible for declines in shares of luxury goods retailers such as Burberry at the end of September.

But the worries took a back seat yesterday, as investors bought in the read-across from the German fashion house Hugo Boss, which upped its earnings outlook yesterday. Boss said it expected Asian sales to almost triple by 2015, with China playing a starring role. This refocused minds on the opportunities for London-listed Burberry, which enjoyed strong gains throughout the session before closing at fourth place on the FTSE 100, up nearly 4 per cent or 49p at 1,402p.

Overall, the market was strong, with the blue chips gaining 56.52 points to 5,567.34 last night, although traders highlighted the fact that, with the European debt crisis still unresolved, volumes remained low.

Italy was under the spotlight, as Prime Minister Silvio Berlusconi, who has been at the focus of market concerns about Rome's ability to implement structural reforms, faced a key parliamentary poll on budget policy. In the end, he won the vote but lost his parliamentary majority.

The result led to some losses on the benchmark index, but not enough to take into negative territory as traders awaited clarity on the political situation. The mid-cap FTSE 250 index also closed higher yesterday, gaining more than 1 per cent or 117.1 points to 10,419.34.

Lloyds was the strongest of the blue chips, rallying by more than 4 per cent or 1.21p to 28.9p despite posting a third-quarter loss. The jump was put down to the positive outlook on margins, which analysts said was supporting investor sentiment around the stock. The remainder of the sector was also firm, with Royal Bank of Scotland gaining 0.08p to 22.33p and Barclays adding 2.65p to 182p.

Weir, the pumps and valves business that fell back despite posting a confident update on Monday, regained its composure, rising by 51p to 1,911p, after Credit Suisse reiterated its positive stance.

The broker also raised its target for the stock to 2,050p as it blamed profit-taking for the weakness on Monday. "A strong share price performance over the last month and management maintaining rather than upgrading... profit guidance contributed to [the fall]," its analysts said.

On the downside, AstraZeneca took the FTSE 100 wooden spoon last night, with disappointing news on an experimental antidepressant drug from the pharma group and partner Targacept dampening the mood around its shares. The treatment failed to meet its goal in a clinical trial, helping to send Astra down by more than 3 per cent or 93.5p to 2,873p.

But the trial result wasn't the only factor weighing on the stock. Also muddying the waters was some negative comment from Morgan Stanley, whose analysts lowered their recommendation on Astra to "underweight" from "overweight", with a revised 3,200 target price, against 3,570p previously.

They were more positive on blue-chip rival GlaxoSmithKline, which was 18p better off at 1,390p after Morgan Stanley upgraded its stance to "equal weight" from "underweight".

Further afield, the chip designer Imagination Technologies shrugged off some questions about its valuation, with the stock rising by a healthy 10p to 470p despite UBS analysts initiating coverage with a "sell" recommendation.

The broker said it considered Imagination as "a high-quality company", similar to FTSE 100 listed ARM, "but in graphics". However, the shares did not reflect the competitive risks in its markets, it warned. "With its price to earnings multiple in the top half of its historical range... and limited estimates upside, we believe outcomes are biased to the downside," the broker explained, setting a 400p target price on the stock. ARM was 3.5p higher at 600p.

The Superdry retailer Supergroup continued to rally ahead of this morning's second-quarter trading update, gaining another 11.2 per cent or 73p to 725p last night, while Premier Foods, which jumped on Monday after announcing an agreement with lenders to defer an upcoming covenant test, added a further 3.1 per cent or 0.114p to 3.812p.