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Investors take stock after FTSE's three-week rally

Investors take stock after FTSE's three-week rally

Investors in European shares booked some profits, taking stock after yesterday’s all-time highs on Wall Street and a FTSE winning streak that has endured most of February.  

With the exception of one day, the FTSE 100 has risen uninterruptedly for three weeks. Yesterday markets celebrated an increase in merger activity, economic optimism and relief that the political crisis in Ukraine may avoid slipping out of control. The US S&P 500 hit a record high, rising above 1,850, before closing at 1,847.

But on Tuesday morning that exuberance was tempered by some less than stellar corporate numbers, as well as renewed jitters over the Chinese economy.

China’s benchmark index had fallen 2% overnight amid concerns about a cooling property market and falling currency. The fears were sparked by the news that China’s Industrial Bank is cutting lending to property developers.

Mining shares were as usual following China’s fortunes and exerted a drag on the FTSE 100, with Rio (RIO.L) and Anglo American (AAL.L) down around 3%. The FTSE was down 0.6% at 6,824.

London mid-cap Ashmore (ASHM.L) fell nearly 9% to 310p after the emerging markets focused asset manager reported pre-tax profits of £79.5 million for the second half of 2013 compared with £120.3 million in the same period last year. The group was particularly hard-hit by emerging market currency losses.

Some analysts spotted a buying opportunity in the shares. ‘We consider Ashmore to be a well-managed specialist fund manager, however it would be easier to take advantage of what should be a negative correction today if the outlook statement gave greater insight into a potential return to net inflows,’ said analysts at Espirito Santo.

Engineering group GKN (GKN.L) was also concerned about the impact of currency movements on its business, using its full-year results to warn ‘adverse currency could provide a significant translational headwind’. The company reported a 7% rise in annual profits.

Today’s 3% decline in GKN’s share price to 402p comes after a 65% rise over the past 12 months.

‘Today's FY13 result is ahead of our forecasts, but the FY14 outlook may not be enough to add momentum to the equity story,’ said Sandy Morris of Jefferies, noting any good news was already priced into the shares. ‘We don't believe the GKN equity story is over, just that some water may need to go under the bridge, notably in relation to debt reduction.’

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