Global stocks boosted by shift into value shares
London’s FTSE 100 crossed 7,000 points on Friday to reach its highest level since February last year as investors piled into the “value” sectors that feature heavily in the UK blue-chip index.
The FTSE closed up 0.5 per cent at 7,019, breaching the 7,000 threshold for the first time since the coronavirus crisis swept through Europe, led higher by financials, basic materials and industrial stocks.
Similar bets were visible on Wall Street, where the S&P 500 was up 0.2 per cent to a new record during mid-afternoon trading in New York, with basic materials the top-performing sector of the blue-chip index. The tech-focused Nasdaq Composite slipped 0.1 per cent while the Dow Jones Industrial Average and FTSE All-Word benchmarks both climbed to fresh peaks.
The moves followed strong retail sales and employment figures released in the US on Thursday and record quarterly gross domestic product data from China, which often moves markets despite analysts’ long-held misgivings about the validity of the statistics.
US retail sales rose in March by the most in 10 months, while the number of Americans filing for new unemployment benefits fell to a post-pandemic low of 576,000 last week, figures published on Thursday showed.
China on Friday reported an 18.3 per cent year-on-year increase in economic output. The highest-ever recorded jump in the nation’s GDP was slightly below analysts’ expectations and was also flattered by the base effect of Covid-19 shutdowns this time last year.
Helping to lift the UK’s leading stock benchmark is its leaning towards previously unloved sectors. The FTSE 100 has the highest weighting of value shares — stocks in old economy industries that are sensitive to the economic outlook — of all major world stock markets, according to Citigroup.
Funds that follow momentum trading strategies, which involve backing shares whose prices have been on a positive trend, are also increasingly buying value stocks.
“This is a highly unusual phenomenon, and is occurring as a consequence of reflationary [and] value names now coming top of the common momentum construction algorithms,” equity analysts at Barclays commented.
The Stoxx 600 index, Europe’s regional benchmark, closed up 0.9 per cent to another record high. The Dax in Frankfurt powered 1.3 per cent higher, while the CAC 40 in Paris closed up 0.9 per cent.
In Asia, Tokyo’s Nikkei 225 average was only 0.1 per cent higher but the Shanghai Composite closed up 0.8 per cent and Hong Kong’s Hang Seng rose 0.6 per cent.
The benchmark 10-year US Treasury was broadly unchanged, steady at 1.580 per cent, after staging a strong rally a day earlier in a move that surprised some analysts because of Thursday’s strong economic data.
The government bond market may be receiving a temporary boost from haven buying, said Lombard Odier chief economist Samy Chaar, after US president Joe Biden imposed sanctions on Russia.
Peter Westaway, economist at Vanguard, said markets had entered a “goldilocks” phase where stocks were rising on economic growth prospects while bond prices were also gaining because investors had started to believe assurances from the US central bank that it had no immediate plans to raise interest rates.
The moves had caused “a positive correlation” between Treasuries and equities that was storing up problems for investors holding traditional 60-40 portfolios that use government bonds to cushion against stock market falls, he said. “When both asset classes are going in a positive direction, it does not feel so bad, but when the mood changes it will not be ideal.”
The dollar, as measured against a basket of major currencies, slid 0.1 per cent. Brent crude, the international oil benchmark, dipped 0.04 per cent to $66.94 a barrel.