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%.