Market Report: Prudential boosted by hope of Asia upturn

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The Independent Online

The insurer Prudential touched an intra-day high of 310p, up 40.5p, yesterday after MF Global said that the stock, down 37 per cent in the last month alone, should "be bought aggressively". Analyst Trevor Moss argued that the insurer's slide over the past few weeks was inexplicable given its capital position and the health of its businesses in the US, the UK and in Asia.

Based on the EC's insurance groups' directive, the insurer had a capital surplus of £1.2bn at the end of September while the US business, which has around $1.5bn (£1bn) of surplus over the level of capital required to maintain its "AA" credit rating, remains well managed and well positioned, Mr Moss said.

He added that, as far as Asia was concerned, Prudential "will continue to be a major beneficiary of the fallout from AIG in the region". He said: "You can only be worried about Asia when the Asian business is trading fancy multiples, which it clearly is not."

At the close, Prudential was up 7.61 per cent, or 20.5p, at 290p.

Overall, the FTSE 100 closed up 63.76 points at 4,232.97, while the FTSE 250 fell to 6,127.76, down 29.09 points. The market was dragged lower by early losses on Wall Street, where investor sentiment sank after JC Penney posted a disappointing update and the US Commerce Department said retail sales fell by 2.8 per cent in October as consumers reined in their spending.

The decline in the FTSE 250 came as UBS said it preferred the FTSE 100 to the mid-cap index. "The arguments are more evenly balanced than they were, but we continue to favour the FTSE 100 over the FTSE 250. Sterling weakness more directly supports the FTSE 100 and during the last recession, it outperformed the FTSE 250," the broker said in an equity briefing to clients.

On the FTSE 100, firmer metals prices before the G20 meeting in Washington boosted battered commodity stocks. Antofagasta, the Chilean copper producer, gained 3.27per cent, or 10.75p, to 339.5p, and Anglo American, the South African mining group, rose 3.45 per cent, or 43p, at 1,291p.

UBS, which weighed in on the sector last night, said that despite recent troubles, the "seeds of [the] next up-cycle are being sown".

"Cutbacks in existing production combined with inevitable delays in new production will simply exacerbate an already relatively tight supply situation," the broker said.

"At the current time, supply concerns have been squashed by the very poor demand environment, but if/when demand does recover, supply will once again struggle to keep up, deficits will grow and commodity prices will rise. This effect may be compounded by a weakening US dollar environment."

Elsewhere, Man, the London-based hedge fund group, continued its recovery from recent weakness, climbing 7.67 per cent, or 16p, to 224.25p, after Investec switched its stance on the stock to "buy" from "sell".

Arguing that the recent share price fall was down to, among other things, the fear of tougher times ahead for the hedge fund industry, the broker said that, at current levels, the valuation looked "compelling". Investec said: "The outlook is tough, but in our view the rating more than compensates for this." Imperial Tobacco was firm, gaining 25p to 1,590p, after Morgan Stanley played down concerns about the levels of debt and the perceived refinancing risk at the company. Specifically, the broker said that, based on its discussion in the credit markets, the widening of Imperial's five-year credit default swap spread did not reflect fundamentals and should be temporary.

"The most likely explanation is the 'technical' impact of loan hedging [for regulatory capital reasons] by the banks who lent Imperial funds to acquire Altadis," the broker said.

On the second tier, Pali International weighed in on DSG International, reiterating its "sell" rating for the stock, highlighting the risk to forecasts when the retailer reports its interim results this month. The broker said it preferred Kesa Electricals, which it rates as a "buy".

At the close, DSG was up 2.6 per cent, or 0.5p, at 19.75p, a slight recovery after falling almost 32 per cent the day before. Kesa was down 3.21 per cent, or 2.25p, at 67.75p.

Logica was among the weakest on the FTSE 250, losing 10.63 per cent, or 8p, to 67.25p, after rumours about a possible liquidity problem overshadowed a well-received interim management statement.

Citigroup played down the speculation, saying: "Don't believe in conspiracy theories." The broker added: "We remain sellers but believe [the day's move] does not reflect the underlying situation, so we could see some short-term strength."