UK stocks: FTSE boosted by Barclays, hopes for ECB action in June

Written by Reuters | London | Updated: May 9 2014, 07:39am hrs
FTSEBritain's No. 4 grocer, Morrisons, was the second-best blue-chip riser. Reuters
Britain's top shares closed at their highest in more than two months on Thursday, as Barclays announced a revival plan and investors welcomed the possibility of more stimulus steps from the European Central Bank in June.

Barclays was the standout gainer on the FTSE 100 , up 7.9 percent after it said it would cut 19,000 jobs in the next three years and set up a "bad bank".

"Barclays' significant restructuring to simplify the group is welcomed by investors ... even if it means the flagship investment banking division, which has driven things for so long, needs scaling back," said Mike van Dulken, head of research at Accendo Markets.

Britain's No. 4 grocer, Morrisons, was the second-best blue-chip riser. The chain kept its profit forecast for the year after March's warning, prompting some investors to close out their hefty negative bets on the stock.

Its shares, which have lost about a quarter of their value so far this year, rose 4.2 percent. The supermarket is the fifth most shorted stock on the UK benchmark, with 5.8 percent of its shares out on loan, according to data from Markit.

The FTSE 100 ended up 42.81 points, or 0.6 percent, at 6,839.25 points, its highest close since February 24.

The ECB, which is trying to counter the risk of excessively low inflation in the euro zone, kept rates on hold, but president Mario Draghi said the council "was comfortable" with the idea of acting next month, after its staff forecasts are published.

CMC Markets senior market analyst Michael Hewson saw scope for the UK benchmark to retest 6,875 - the 2013 high - or even 6,900.

"There is potential for further gains simply because ... if the inflation data continues to show no signs of improving, the likelihood is that the market will try and front-run a rate cut or some form of action in June," Hewson said.

The broader market's advance was capped by sharp falls in some shares. Sage Group fell 5.3 percent as Chief Executive Guy Berruyer said he would step down and its results disappointed some investors.

Equity markets have been buoyed in recent weeks by a burst of deal-making and bids, offsetting concerns about a lacklustre corporate earnings season.

With valuations for the UK equities not far above their long-term average, some analysts are bullish. The FTSE 100 index trades on a 12-month forward price/earnings ratio of 13.5 times, against its 10-year average of 11.8 times, Thomson Reuters Datastream shows.

Ashish Misra, head of investment policy at Lloyds Bank Private Banking, reckoned on getting about 10 percent total return from UK equities over the next year, a figure comprising continued earnings growth at about 7 percent and a dividend yield of about 3 percent.

"There aren't too many asset classes that we look at in global markets which are offering that sort of attractive double-digit return over a 12-month window," he said. "I'm less concerned about the shorter-term noise."