Comment: Glencore illustrates volatile markets

Martin Flanagan
Martin Flanagan
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IT’S been a volatile few days for the UK stock market. Banking stocks helped support the FTSE 100 on Friday to give a decent ending to the week. They were buoyed after the Financial Conduct Authority said it was considering imposing a deadline on the insurance protection claims scandal that it sometimes seems has overshadowed the sector since Noah tried his hand at carpentry before pushing the boat out.

But equally as indicative of underlying market sentiment was the previous day’s trading. The bulls were in the ascendant at first, buying on perceived weakness and squeezing the shorters in the market as the Footsie jumped 100 points. But a battery of dismal manufacturing data from the US, UK, mainland Europe and Asia pricked the optimism and the index ended up just 10 points.

These swings have become something of a given over recent months. Meanwhile, UK equities have just had their worst quarter since 2011. The Footsie is off about 7.5 per cent on the year, an apparent significant worsening of the 2.7 per cent fall in 2014.

But as Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, points out, when you exclude the index’s pivotal “swing” sectors of commodities and Big Oil the decline comes in at less than half that. Not great, but not disastrous either.

Glencore, the mining and commodities trading giant, is a high‑profile illustrator of the point. It has lost more than two-thirds of its stock market value in 2015, hit by the slowdown in China and other emerging markets. Mining and oil shares generally have lost about a third of their value in that time, the latter sector undermined by the punctured price of black gold. Given their considerable heft in the Footsie, that has been a big drag.

But if as an investor you have body-swerved those sectors in a spirit that discretion is the better part of valour, you might be nursing no more than low to mid-single digit losses, or even have garnered some moderate gains.

As Hunter says: “Given the difficulties which the market has faced in 2015, from Greece to the US, from commodities to oil and from sluggish growth to the strength of the dollar and its effect on emerging market debt, the performance of the FTSE 100 excluding oils and miners has held up remarkably well.”

Merger and acquisition activity, typified by Anheuser‑Busch’s takeover approach to SABMiller to form a brewing colossus, is also showing animal spirits, another barometer of overall business confidence. Things could still get worse in the final quarter of the year. If you or your pension fund are invested in the Footsie it is more inextricably tied up with the health of the real economy, as outlined above, than for many years.

A mobile telecoms boom or transient dotcom mania are no longer flaky drivers of investment success. But currently the glass for many shareholders is arguably nearer half-full than empty. «