Market Report: Obama win takes shine off drug makers

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The prospect of change in America's healthcare policy unsettled the pharma group AstraZeneca, which lost almost 4 per cent or 109p to 2,649p yesterday.

Analysts at WestLB said Barack Obama's presidency, and the Democrats' strength in Congress, had opened the door for increased pricing pressure on drug makers, placing up to 7 per cent of Astra's sales at risk.

The broker said that while the President-elect's plans to increase affordable healthcare for all may drive volumes up by 4-6 per cent, his proposals to allow Medicare, the US government's health insurance programme, to conduct price negotiations would put the drug maker under pressure.

"According to independent sources this could drive down prices by up to 40 per cent, with savings estimated at $30bn [£19bn] or about 10 per cent of the total [US] market value," WestLB said, placing its recommendation for Astra under review given the election result and its recent strength.

Overall, the FTSE 100 ended down 108.77, or 2.3 per cent, at 4,530.73 while the FTSE 250 fell 21.24, or 0.3 per cent, to 6,757.46. Disappointing economic data, including the news that the dominant services sector shrank at its fastest pace since 1996 in October, bore on sentiment as investors moved to bank profits from a week of rallies.

Miners, among the biggest beneficiaries of the recent buying spree, littered the loser board after commodity prices fell and Morgan Stanley revised its estimates for the sector. Kazakhmys, the strongest on the FTSE 100 on Monday and Tuesday, was the second weakest last night, down 10.82 per cent or 43p at 354.25p after the broker slashed its target for the stock to 500p from 890p. Compatriot ENRC, whose target was cut to 625p from 780p, was down 12.01 per cent or 49p at 359p while Xstrata lost 8.74 per cent or 114p to 1,190p after its target was reduced to 1,550p.

The heavyweight oil issues were also weak. Oil prices eased as the dollar strengthened in celebration of Mr Obama's victory. Royal Dutch Shell, trading ex-dividend, was down 4.78 per cent or 89p at 1,774p. BP was also unsettled, losing 1.92 per cent or 10.25p to 523p despite some support from HSBC: the broker reiterated its "overweight" stance on the stock, increasing its target price to 650p from 570p.

On the upside, financials were strong with Royal Bank of Scotland claiming first place on the FTSE 100, up 5.83 per cent or 3.8p at 69p and Barclays, in third place, climbing to 195.9p, up 5.38 per cent or 10p, as investors deserted commodities.

Insurers were also firm with RSA Insurance gaining 3.52 per cent or 5.1p to 150.1p and Prudential rising to 401.5p, up 2.16 per cent or 8.5p. The sector rose in anticipation of higher taxes for the wealthy once Mr Obama settles into the Oval office: analysts reasoned that higher taxes would give the rich an incentive to invest more in tax-deductible insurance products.

Old Mutual, trading ex-dividend, missed out on the sector rally, losing 8.49 per cent or 4.97p to 53.6p after Morgan Stanley downgraded it to "equal weight" from "overweight".

"Our modelling suggests a further capital injection of up to £330m may be required into the US/Bermuda. The combination of credit losses and reserve strengthening – together with capital markets movements – are likely to have materially reduced the FGD [financial groups directive capital] surplus from the £1.5bn [in the first half of 2008] to below the target level of £750m," the broker said, reducing its target price for the stock to 73p from 108p.

On the second tier, a gloomy update from Redrow, down 10.53 per cent or 22.25p at 189p, ended the housing sector rally. Traders said an interest rate cut was already price-in and focus had reverted to the conditions in the housing market. As a result, Persimmon fell to 322.75p, down 8.24 per cent or 29p, and Barratt Developments lost 4.84 per cent or 4.25p to 83.5p. Bellway was down 7.37 per cent or 44.5p at 559.5p. Bovis lost 3.51 per cent or 13p to 357.25p.

At the other end of the index, Game, the computer games retailer which was touted as a possible merger partner for HMV on Tuesday, was re-cast as a target for GameStop Corporation, the world's largest video game retailer. Traders played down the rumours, attributing the strength in the stock, which was up 7.68 per cent or 11.5p at 161.25p, to a short squeeze ahead of the Bank of England's decision on interest rates.

The rally was attributed to a report from Verdict Research, which said that video games were expected to outsell music and other video products this year. HMV fell as investors took profits from Tuesday's speculative gains, losing 1.5p to 109.75p.