FTSE back below 7,500 as virus fears grow, and major Amigo shareholder wants out

“The market is back in panic mode about China’s coronavirus. An extended lunar New Year holiday is nothing to celebrate for China, instead it represents an escalation of attempts to contain the deadly virus by restricting travel and locking down major cities,” comments Russ Mould, Investment Director at AJ Bell.

“As the death toll rises, all eyes are on the World Health Organisation. So far it has resisted calls to declare the outbreak a health emergency. Should that change there could be restrictions on international trade and travel, putting pressure on a fragile global economy. “The difficulty for investors is that it is extremely difficult to predict what turn events might take in the coming days and weeks. Until there are signs the virus has been contained equities look set to be dogged by uncertainty.

“Previous experience of global health crises does at least suggest there could be a fairly rapid recovery once the number of cases has peaked.

“A sell-off in Japan overnight – with other major Asian markets closed for a holiday – has spread to Europe with the FTSE 100 handing back all of the gains it made on Friday and then some.

“The heavy weighting of the index towards the resources sector has exacerbated the situation, given how these companies’ fortunes are closely tied to the commodity-hungry Chinese economy.

“Since China announced the first death on 11 January global markets have stumbled, with the FTSE 100 among the worst performers outside of China.”

Market Performance since close on 10 January 2020 
S&P 500 (US) 0.90%
Nikkei 225 (Japan) -0.10%
DAX (Germany) -0.70%
FTSE 100 (UK) -1.30%
CAC 40 (France) -1.60%
Hang Seng (Hong Kong) -2.40%
SSE Composite (Shanghai) -3.70%

Source: Sharepad, 27 January 2020

Amigo

“Will anyone be brave enough to buy guarantor lender Amigo? By saying it wants to sell its 60.66% stake, Amigo’s biggest shareholder Richmond has sent a signal to the market that it sees little chance of value generation in the near term.

“This is somewhat odd as Richmond only recently had two of its representatives appointed to Amigo’s board, which led to the resignation of both the chairman and chief executive.

“Richmond had effectively secured prime position to have a major influence on the company’s strategy – so why effectively walk away before there has been enough time to revive Amigo? One can only presume that the regulatory pressures are too much for Richmond to stand a chance of making a difference with its investment.

“Amigo has been under pressure from the regulator to improve the way it conducted business. The Financial Conduct Authority has been worried that many guarantors do not fully understand the risks they are taking on, as well as too many guarantors ending up paying part of the loan, as well as interest rates potentially being too high.

“Amigo expressed concerns in its latest trading update about ‘increased pressure’ on its business and a ‘continued evolution’ in the approach of the Financial Ombudsman Service, which settles disputes between consumers and business providing financial services. Those comments may suggest Amigo is dealing with a lot of complaints.

“Richmond may have come to the conclusion that this isn’t a fight worth backing and it is better to cut its losses than continue sweating away.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.


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