Drop in HSBC and Experian pulls down FTSE

By Sudip Kar-Gupta

LONDON (Reuters) – A fall in the shares of HSBC bank and credit-data firm Experian pulled down Britain’s top equity index on Wednesday, adding to the signs of weakness in corporate earnings that are stalling the market’s rally.

The blue-chip FTSE 100 index was down by 0.4 percent, or 25.45 points, at 6,773.11 points late in the session. The index had reached a two-month closing high last Friday after five straight days of gains.

A 1.6 percent fall at HSBC took the most points off the FTSE. The bank recorded a 20 percent drop in first-quarter profits and said customer activity was muted in April.

Investec analyst Ian Gordon said he preferred rival bank Standard Chartered to HSBC and that HSBC’s return on equity could remain under pressure in the coming years.

“We see no easy way out and expect RoE to remain sub-10 percent until 2017,” said Gordon, who kept a “hold” rating on HSBC’s shares.

Experian was the worst-performing FTSE stock in percentage terms, sliding 7 percent after Chief Executive Don Robert said growth in the first half of this year could be constrained.

The FTSE hit a peak of 6,867.42 points in late January, which was close to its highest level since early 2000. It has since fallen back amid concerns about a slump in emerging markets and mounting unease about clashes in Ukraine between Kiev authorities and pro-Moscow militants.

The FTSE is trading on a 12-month forward price/earnings ratio of about 13 times, against its five-year average of 11, Thomson Reuters Datastream shows. Meanwhile, analysts have been steadily lowering profit forecasts since the start of 2014.

Peel Hunt equity strategist Ian Williams said he saw little scope for FTSE gains until at least mid-year. The market may need more signs of takeover activity to push higher, he said.

“Valuations have come as far as they can in the short term purely on an earnings basis, so it does require that corporate activity to add a bit of upside potential,” he said.

(additional reporting by Tricia Wright; Editing by Larry King)