Market update - 5 March

The FTSE 100 was 2.5 per cent or 91.2 points behind at 3554.5 while the FTSE 250 fell to 6015.5, down 67.9 points, at just after noon.

Insurers proved the biggest drag in early trading, with leading stocks slumping on concerns about Aviva, which posted full year results this morning. Traders were worried about the life insurer’s decision to maintain a dividend, asking if it was wise to keep the payout given fears about capital strength, which have been mounting on account of continued volatility in equity markets and concern about possible corporate bond defaults.

A sudden sell-off sent Aviva tumbling by 30 per cent or 86p to 199p. Friends Provident was down 23.2 per cent or 16.3p at 53.9p and Legal & General was 17.3 per cent or 6.5p behind at 30.9p.

Sector sentiment was also hit by news from Standard & Poor’s, the ratings agency which this morning issued report on UK life insurers, saying that “an increasingly challenging” operating environment was “creating incremental downward pressure on ratings” for the industry.

S&P added that although there were positives – including “the strength of prudential regulation, robust risk management practices, the long-term fundamental strengths of the UK economy, and the size and diversity of the life and pensions market” – in support of the sector, these were being “increasingly offset by heightened financial and economic risk factors in the near term, long-term strategic challenges, and a highly competitive operating environment”.

“Depressed asset values and a weak economic outlook in the short term will in our view present growth and earnings challenges for the sector, while increased asset risks and liability risks will weaken balance sheets,” the agency said.

Moving up

The mobile satellite group Inmarsat bucked the market trend, advancing by 5.6 per cent or 23.7p to 443.2p, after top shareholder Harbinger Capital Partners issued an update on the regulatory process regarding its plans to take over the company.

Parts of the recently depressed commercial property sector were also strong, rebounding amid chatter suggesting Hammerson’s £584m rights issue was winning support amongst shareholders. As a result, Hammerson was up 5.5 per cent or 12.5p at 237.7p, British Land gained 3.5 per cent or 11.7p to 342.2p and Land Securities jumped to 489p, up 1.8 per cent or 9p.

Moving down

Barclays fell to 76p, down by almost 12 per cent or 10.2p after Sandy Chen, the banking analyst at Panmure Gordon, issued a bearish note on the lender.

“If corporate defaults jump and structured credits undergo another wave of downgrades, we think the structure of swaps with monolines and other counterparties that Barclays [has] put in place to limit losses could buckle – leading to further impairments and/or write-downs,” he said, adding:

“These and other risks have led us to forecast impairment charges of circa £13bn in 2009 and 2010, versus management guidance of £7-8bn. We expect this to push Barclays into major losses in both 2009 and 2010; if [the lender] decides not to participate in the Government asset protection scheme, we see additional capital/dilution risk as well.”