Market Report: Standard Chartered soars ahead of rate rises

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Standard Chartered was in focus as a rising appetite for risk boosted the FTSE 100 last night.

The stock swung to 1575p, up more than 4 per cent or 65.5p, after Credit Suisse highlighted the scope for stronger margins as central banks raise interest rates. The broker was also reassured by the bank's trading update last week, citing the "comforting statement" on the group's exposure to Dubai as one of the key takeaways from the statement.

"With a core funding ratio of [around] 77 per cent at the end of 2008 on our estimates, Standard Chartered screens as one of the best-funded banks in the European Bank[s] sector," Credit Suisse said. "This places the group well to benefit once rates begin to rise, which our economists expect from early 2010 in Korea, China, India and Indonesia."

The broker also tackled the issue of valuation, saying that while the shares appear expensive relative to the European banks sector, the "premium is justified given Standard Chartered's geographic focus in Asian emerging markets, the superior return on tangible equity that we expect [it] to generate ... and the relatively strong balance sheet position". "Comparing valuation to Asian banks ... shows Standard Chartered trading broadly in the middle of the range, with Indian and Chinese banks commanding higher multiples and Korean banks at the lower end of the range."

In the wider sector, Barclays rose by 3.65p to 291.65p and HSBC gained 16.5p to 719.9p as traders welcomed Abu Dhabi's intervention in the Dubai debt crisis. Abu Dhabi said it would provide $10bn (£6bn) in funding to its fellow emirate, reassuring investors and boosting stock markets around the world. Of the London-listed banks, Lloyds, which was the subject of record volumes after confirming strong backing for its rights issue, was the sole laggard, declining by 1.06p to 55.16p. The weakness was down to technical reasons related to the placing of the rump, traders said, anticipating a rebound in coming sessions.

Citigroup also did its bit to lift sentiment, announcing plans to repay $20bn in bailout funds. Coupled with the news from Dubai, the statement lifted the appetite for risk, driving the FTSE 100, up 53.77 points at 5315.34, beyond the 5300-point mark. The FTSE 250 index also gained ground, rising by 37.12 points to 9037.77. "Tuesday is likely to set the week's mood with inflation data in the UK followed by industrial production, PPI and the closely monitored Empire State manufacturing survey across the pond during the afternoon," Tim Hughes, head of sales trading at IG Index, said.

Besides the banks, the benchmark was supported by the mining sector, with Antofagasta rallying by 29.5p to 945p, Anglo American gaining 76p to 2636p and the Eurasian Natural Resources Corporation advancing by 18p to 891.5p. Lonmin was 66p ahead at 1830p after JP Morgan switched its stance on the stock to "overweight" from "neutral". Rio Tinto, the target price for which was raised to 3900p from 3800p at Société Générale, was 41.5p ahead at 3175.5p.

The Royal Bank of Scotland supported sentiment around Wood Group, the oil services group, which rose by 10.5p to 296.6p. "A recovery of North American natural gas prices and a positive futures price should drive further upside in rig count and a return to growth in the Well Support division," the broker said, revising its stance to "buy". "Restructuring and new lower cost manufacturing should improve margin as volumes recover."

Further afield, Arm, the semiconductors group, was 0.5p firmer at 169.8p after Deutsche Bank initiated coverage with a "buy" recommendation, saying that the company's dominant position in the market for wireless chips geared the company to the growing adoption of smart phones and net book computers.

"Enhanced functionality and higher processing requirements in smart phones means the average smart phone contains a higher number [of] and more valuable chips than mid or low-end handsets," the broker said. "The net book market is still young and rapidly growing with net book processors dominated by Intel. We believe the company has a good chance to gain more traction here, with Google Chrome potentially opening up the net book market for ARM-based processors."

Elsewhere, the infrastructure group Mouchel surged by 25.8 per cent or 49p to 239p after confirming that it had received two unsolicited approaches from VT, which fell by almost 3 per cent or 15.5p to 526p last night. Mouchel turned down the two approaches, terming them "wholly inadequate". The company did not detail the proposals, though market rumours suggested the approaches may have been pitched at around the 240 to 250p per share level.

The possibility of interest from Capita, down 1.5p at 730p, and Serco, up 5p at 522.5p, was also mentioned. In response, Panmure Gordon switched its stance on Mouchel to "hold" from "sell" stance, saying that "a cautious recommendation is no longer appropriate". KBC Peel Hunt did the same, while Altium moved its recommendation to "buy" from "sell".

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