Market Report: IAG shares soar, but slowdown begins

With the Christmas holiday travel season approaching, British Airways owner, IAG, flew up to the top of the FTSE 100 leaderboard on hopes it will win more landing slots at Heathrow. Traders were cheered by news that IAG has done a deal with Ryanair to buy a chunk of Aer Lingus slots at Heathrow if its bid to buy its Irish rival is approved.

IAG shares were the biggest risers, jetting up 5.8p to 179.5p – their highest level in nine months.

The strong performance by the owner of BA and Iberia was one of the few bright spots on a subdued day, as the Christmas slowdown began and volumes declined sharply. The FTSE 100 was subdued dropping 0.2 per cent or 9.61 points to 5,912.15 but as minds focus on annual bonuses, traders are optimistic that the Footsie can finish the year up, having ended 2011 at 5,572 points. If it finishes around the 5,900 mark, it should have eked out a rise of 5 per cent or so – not bad in a time of near-zero interest rates.

Charles MacKinnon, the chief investment officer of boutique wealth manager Thurleigh Investment Managers, is among those who are quietly optimistic about equities.

"The dilemma we are now in is that there are no truly safe havens left anymore; government bonds are yielding less than inflation, which means that they are not safe except for the shortest period of time and banks are known to be dancing on the edge of bankruptcy, held afloat only with massive injections of government cash," he explains in a note. "So where do we go if we want to reduce the risk in our clients' portfolios? Our choice has been, and continues to be that the safest place for capital right now is with very large corporations that have strong balance sheets and a global presence."

Vodafone would seem an obvious pick as a major corporate with global presence, given that it is the biggest dividend payer in the FTSE 100. But the mobile giant was the third biggest faller over fears that Britain's forthcoming auction of 4G mobile phone spectrum will cost more than expected after Holland's sale of airwaves smashed forecasts.

Shares in Vodafone, one of the successful bidders in Holland, dived 2.75p to 158.2p. The Dutch-based telecoms firm KPN suffered even worse, with its shares slumping 15 per cent, as it warned it must slash its dividend payouts for both this year and next.

Analysts fretted that KPN had over-paid in the Dutch auction, which raised £3bn. There looks to be a clear read-across to the UK, a much bigger market.

George Osborne caused some controversy when he said in his Autumn Statement that Britain's 4G auction is likely to raise £3.5bn, with some critics suggesting he was being optimistic. But, given the Dutch experience, the Chancellor's forecast might turn out to be conservative.

Mobile giants such as Vodafone have to take part in the 4G auction to get access to this new spectrum as consumers demand super-fast broadband on their smartphones and tablets.

Elsewhere on the FTSE 100, another big dividend payer, BP, continued its asset sales in the wake of the 2010 Gulf of Mexico oil spill, offloading its interest in the Sean gas field in the UK North Sea to energy firm SSE for $288m (£178m). The total value of BP's assets sold in the North Sea is now close to £2bn. Shares in the oil giant were virtually unchanged, rising 0.55p to 427p – still more than a quarter below its pre-Gulf of Mexico level.

The wooden spoon on the Footsie went to generator supplier Aggreko, whose shares fell 461p to 1664p on fears about the "uncertain" economic outlook in 2013, and there were jitters over other companies in the power sector. Energy services supplier Hunting was among the worst performers on the FTSE 250, tumbling 48.5p to 757.5p, also on fears for the short term.

There was better news for investors in Egypt-focused miner Centamin, which rallied 7.5p to 42.14p, making it the biggest riser on the FTSE 250. Its shares plunged last week when fuel supply and operations at Sukari were temporarily suspended but Centamin said it expected things to return to normal "in the coming days". The shares are still down more than half on the year.

Emerging markets may be risky but they can certainly provide big returns. Fortune Oil has sold its gas division to China Gas Holdings for $400m (£247m) – a 35 per cent premium to the entire market capitalisation of Fortune Oil. Shares in the London-listed firm surged 1.64p to 10.75p. Broker VSA Capital says its "break-up valuation" has increased and it has a punchy target price of 28p for Fortune Oil.

Buy: SPIRENT COMMUNICATIONS

Snap up Spirent, comes the advice from Panmure Gordon. The broker says the communications support business is working through "budget flush" and has yet to make fourth-quarter numbers, which are likely to be flat as clients "exercise caution". But analyst George O'Connor says "Spirent's operational drivers" look to have "moved to the right" place. So he expects short-term share price weakness and sees opportunity.

Sell: AQUARIUS PLATINUM

Seymour Pierce believes we should reduce our stakes in Aquarius Platinum. The miner has sold its stake in Zimbabwe's Mimosa mine, which the broker feels is good news. However, it adds that this "alone can not make up the difficulties faced". The broker adds that "the continuing challenges of operating in South Africa" means there is more scrutiny about "the sustained profitability" of the operation. The shares, at 47.25p, are under review.

Hold: OXFORD INSTRUMENTS

Hang on to shares in Oxford Instruments, Investec thoroughly recommends. The broker has been moved by the decision of the business, which makes tools for research, to snap up Asylum Research for $32m (£19.8m), which should provide "good synergy opportunities". The shares are at 1380p and the target price is under review.