Shares soar on back of ban
UK stockmarkets rallied spectacularly on Friday morning on the back of new-found confidence created by the short-selling ban.
Shares in banks, insurers and housebuilders listed in the FTSE 100 and FTSE 250 surged ahead as investors welcomed the Financial Services Authority’s four month ban on short-selling, a technique that enables traders to profit from falling stocks.
Sentiment was also boosted after the US Treasury’s secretary Hank Paulson announced that he is putting together a financial package to rescue US banks from the ‘toxic assets’ – risky sub-prime loans – that have led to the crisis.
At one point this morning shares in the Royal Bank of Scotland rallied by 45%, HBOS by 39%, Lloyds by 36%, and Barclays by 33%. Even troubled buy-to-let mortgage lender Bradford & Bingley, which is listed in the FTSE 250, saw a 36% rise.
But the optimism extended to other shares too, with insurers and housebuilders also cheering the news. Shares in Prudential witnessed a 22% rise, Friends Provident shares were up 20% and Legal & General rose by 17%. Even housebuilders were buoyed by the improved sentiment, with Taylor Wimpey posting a 17% rise, Barratt 16%, and Persimmon 11%.
Andrew Hagger, a spokesperson at Moneynet, believes that the gains will go a long way to restoring some confidence in the troubled financial sector. “The way the markets have yo-yoed over the past two weeks it will go some way to restore a bit of confidence in our ailing high street banks. However, while it is positive when looked at in isolation, shareholders are only just clawing back some of their losses.”
Matt Pitcher, an independent financial adviser at Towry Law, agrees. "Today's gains demonstrate just how difficult it is to try and second-guess the market. It proves the rule that when investing it is vital to be in it for the long term."
The FTSE 100 index fell heavily this week, sliding to a three-year low at one point with worries over the collapse of Lehman Brothers, the fate of HBOS and troubles at insurance giant AIG shaking investor’s confidence in the financial market. However, the cheery outlook keeps the FTSE on course for the biggest one-day rise for 24 years.
The mood was similar across Europe, with France’s CAC 40 index shooting up by 7% and Germany’s DAX 4%.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.