By Atul Prakash
LONDON (Reuters) – The FTSE 100 steadied on Tuesday after hitting a three-week low, with some investors seeing value in beaten-down stocks, although the market remained vulnerable to further declines in the near term.
The blue-chip FTSE 100 index was up 0.08 percent at 6,695 points by 1559 GMT after falling to 6,660.59, its lowest since the middle of February. It fell in the previous two sessions on lingering tensions between Ukraine and Russia and on concerns about China’s economic growth.
Analysts said that the market could witness further weakness in the near term as those geopolitical tensions remained in the background and a slowdown in China’s economic growth could affect prices and demand for raw materials, but the market was poised to scale new highs in the longer term.
“The outlook remains good for equity markets as corporate profitability is still strong,” Henk Potts, equity strategist at Barclays Wealth, said. “What we have been saying to clients is that there is probably greater headroom in Europe than in the United States.”
However, banks came under pressure on Tuesday, with the UK banking index falling 0.5 percent, dragged down by a 2.8 percent drop in Royal Bank of Scotland and a 2.3 percent slide in Barclays.
“We are seeing a degree of softness across the banking sector and a lot of it is to do with the escalation of the forex manipulation scandal, in which some of these have been implicated,” Brenda Kelly, analyst at IG, said.
“We are still not clear exactly what sort of provisions will need to be made by the banks in question, should evidence come to light that there was collusion to manipulate the foreign exchange market.”
Regulators are investigating allegations that senior traders exchanged market-sensitive information via electronic communications to manipulate key currency rates, known as “fixings.
Basic resources stocks remained weak, continuing to be dragged down by concerns about the pace of economic growth in top metals consumer China after data over the weekend showed Chinese exports unexpectedly fell in February.
The UK mining index slipped 0.4 percent, following a 1.8 percent drop on Monday after the Chinese export data. However, some analysts remained positive on the sector’s outlook going forward.
“In the short term, the materials sector is sensitive to macroeconomic developments in China,” Robert Parkes, equity strategist, HSBC Securities, said.
“We are overweight. The sector is deeply unloved, it is attractively valued and we are seeing some positive earnings momentum emerging. We expect the sector’s better capex discipline to lead to an improvement in free cash flow.”
(Editing by Susan Fenton)
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