MARKET REPORT: China’s decision to abandon a key economic target and rising tensions with US casts pall over stock markets as week draws to a close
China’s decision to abandon a key economic target and rising tensions with the US cast a pall over stock markets as the week drew to a close.
Beijing ditched its forecast for GDP growth for the first time since the measure was introduced in 1990.
President Xi Jinping said it was too difficult to predict the outlook for 2020, as governments around the world grapple with the shock caused by the pandemic.
Xi also unveiled a £546 billion stimulus package to boost infrastructure and help prop up ailing businesses.
But the admission that the next few months will be such a big unknown for the world’s second biggest economy is likely to throw industries into disarray, as they lose a key indicator for how much China might want to consume in raw materials and oil – and how much it might want to produce and export.
As SP Angel brokers explained: ‘Lower demand from Western consumers will likely cut into Chinese exports as manufacturers struggle to sell goods.’
Added to this, Beijing’s plans to introduce a new security law for Hong Kong raised concerns it could trigger another wave of violent protests.
Little is known about the details of the bill, which is expected to ban sedition, secession and subversion, but President Donald Trump has already said the US would ‘react strongly’ to China if it pushes ahead with its plans.
Relations were already fraught, with Trump lashing out repeatedly over the country not doing more to contain the coronavirus, and look likely to heat up further.
Shares in financial stocks that are particularly exposed to Asia and China racked up losses yesterday, with Prudential falling by 9.3 per cent, or 103.5p, to 1011p, Standard Chartered dropping 2.4 per cent, or 9.5p, down to 382p and HSBC closing 5 per cent lower, down 19.9p, to 379p.
Oil prices fell 3.8 per cent to $34.70 a barrel as traders fretted about what effect, as the world’s largest oil importer, this could have on China’s need for crude.
The FTSE 100 edged into the red, falling 0.4 per cent, or 21.97 points, to 5993.28.
Water supplier United Utilities also dragged on the blue-chip index, falling 4.6 per cent, or 42.6p, to 879.4p, despite its dividend rising 3.2 per cent on last year. Profits fell 30 per cent to £303m, while revenues inched 2 per cent higher to £1.9 billion in the year to March 31.
It hinted the dividend policy could change in future, saying it would review the payout ‘as a clearer picture’ of post-Covid-19 trading emerges. Analysts are bracing for some people not being able to pay their water bills.
The FTSE 250, meanwhile, yesterday closed marginally up – rising by 0.01 per cent, or 12.9 points, to 16,398.86. It was held back by a 10.6 per cent, or 130p drop in Go-Ahead’s shares, to 1099p, after the bus and rail provider said the disruption to travel caused by the coronavirus will hit profits this year.
The group has scrapped its financial forecasts this year, blaming uncertainty around how much people will use public transport when lockdown eases. It is so far estimating that profits will fall to between £63m and £75m for the year that ends in June, down from £121m it made the year before.
Over on AIM, events magazine and food market operator Time Out Group said it was hoping to raise up to £49m to help pay down debt and tide itself over during a slump in the restaurant and advertising industries.
The group, which has temporarily branded its online magazine ‘Time In’, wants to keep developing new food markets in Porto and London Waterloo. It fell 2.4 per cent, or 1p, to 40p.