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FTSE swerves sharply lower as rally fails

by Chris Marshall on Jan 29, 2014 at 14:41

Mining companies Anglo American (AAL.L) and Antofagasta (ANTO.L) were among the biggest risers in London, both up around 5% after pleasing investors with updates on output in the fourth quarter.

All eyes are now trained on the US Federal Reserve’s rate setters as they conclude their two-day meeting, at the end of which investors will find out whether the money tap is being tightened that little bit more.

The consensus among economists polled by Reuters is for the Fed’s FOMC to cut another $10 billion from its monthly bond purchase pot, meaning just $65 billion a month is pumped into markets.

Fretting over emerging markets

Investors in emerging markets will be watching particularly keenly as they fret about the impact of the continued taper on flows into these volatile regions. The prospect of this further Fed ‘tapering’ has combined with weak Chinese factory data, sharp currency declines and political instability in several key markets to spark the recent heightened fears over emerging markets.

Lars Christensen, chief analyst at Danske Bank, identified three characteristics of the emerging market sell-off: ‘The hardest hit countries are those with large external imbalances (such as Turkey and South Africa), commodity exporting countries (like Brazil and Russia) and countries with rising domestic political/regime uncertainty (such as Ukraine and Turkey),’ he wrote in a research note published yesterday.

Other investors seem content to take money off the table wholesale, grumbled Jan Dehn, head of research at emerging markets fund manager Ashmore: ‘We think EM markets are over reacting to Fed tapering and that the reaction has been far too indiscriminate. Or put differently, there is some serious dumbing down going on in financial markets right now when it comes to EM.’

That’s made for a rough start to 2014 for London shares with the greatest exposure to emerging markets: among them Aberdeen Asset Management (ADN.L) has dropped 21% so far in 2014, while smaller competitor Ashmore (ASHM.L) has lost 18% of its share value.

Two days of gains

This morning’s gains come after the FTSE 100 yesterday managed to rise 0.3%, heaving higher after five straight says of losses. It remains down 2.9% so far in 2014.

Sainsbury’s (SBRY.L) was the worst performing Footsie stock, down 2.7% to 346p, after the supermarket chain announced that chief executive Justin King was to leave the company after ten years. He leaves on a high, having stolen market share from bigger rival Tesco

The blue chip index didn’t suffer the usual round of shares trading ex-dividend on Wednesday morning. However a quartet of FTSE 250 listed firms – Bankers Investment Trust, Fenner, Merchant Trust and Pennon Group – were trading without their dividend appeal.

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