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“The UK may have enjoyed a bit of an Indian summer in recent days but sentiment was ice cold in the markets on Monday morning as the FTSE 100 fell sharply below the 6,000 mark,” comments Russ Mould, Investment Director at AJ Bell.
“The move followed mixed trading in Asia and matched similar-sized drops on other European exchanges as investors weigh concerns around a new wave of coronavirus infections and fears that central banks aren’t immediately coming to the rescue with a fresh round of stimulus.
“The expected introduction of new national lockdown measures in the UK, even if they are not as severe as those introduced in March, will have a big economic impact. Domestically focused firms like free-to-air broadcaster ITV and the banking sector took a big hit.
“Travel stocks again faced severe turbulence amid the rising fears over new restrictions – with British Airways owner International Consolidated Airlines the top FTSE 100 faller.
“As another round of being stuck at home is anticipated, names like Ocado and Just Eat Takeaway were in demand on a potential renewed surge in demand for online grocery orders and takeaways.
“With the risks around a particularly divisive US Presidential election starting to loom large, it was unsurprising to see investors reach for traditional safe haven gold which ticked up above $1,950 per ounce.”
HSBC / Banking Sector
“HSBC’s shares hitting a 25-year low is an embarrassment for one of the world’s best-known banking brands.
“The company has already been facing serious headwinds because of the pandemic, namely the risk of a large jump in customer bad debts and the prospect of low interest rates for a long time in many of its operating regions.
“Banks will find it harder to grow earnings when rates are low. This earnings struggle also affects their future growth opportunities as companies like HSBC will effectively be missing out on extra profit that could be reinvested back in their business to either make them more competitive, accelerate growth through making additional loans to customers, strengthen balance sheets or pay more dividends to shareholders in the future.
“Adding to HSBC’s woes have been political tensions between Hong Kong and the US, the bank being less efficient at generating profits than before the global financial crisis, and a prolonged period of underperformance with its US operations.
“If many investors were skeptical about owning the shares because of those reasons, they are certainly not going to be rushing to buy them when there are allegations of money laundering. It’s another risk to pile on top of the others.”
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