European markets rebound, and BT might be in the sights of India’s Reliance

“Decisive action by governments to try and control the spread of the new Omicron Covid variant has restored some confidence among investors,” says Russ Mould, Investment Director at AJ Bell.

“Despite tougher rules on travel and the reintroduction of wearing face masks in different locations including shops, investors have taken an optimistic view that the pandemic’s new flare-up can be contained.

“The FTSE 100 joined other markets in Europe with a 1%+ hike on Monday. The UK market was led by BT amid more takeover chatter and a rebound in cyclical sectors including oil, mining and banking.

“These sectors were among the worst hit last Friday as they are very sensitive to economic activity, whereby investors panicked that the new variant would hurt the global economic recovery.

“It is natural to see these sectors lead the market recovery, particularly if investors now think the Omicron variant is not going to be too damaging.

“Markets tend to overreact in times of stress and some of the moves seen last Friday would certainly suggest investors raced for the sell button before thinking rationally. Monday’s market movements suggest individuals have had some time to reflect on events over the weekend and are being calmer with their investment decisions.

“However, markets still remain on heightened alert. We will almost certainly see more reports of Omicron spreading to different places, as has been reported this morning with cases in Scotland. But key to deciding future market movements will be data on the impact of the variant and further government decisions.

“After a major share price slump last Friday, International Consolidated Airlines’ mere 1.4% rise on Monday would suggest that markets remain wary about the travel sector’s prospects near-term. Locking down travel corridors is already in motion and so a lot of people are going to have their hopes dashed for a festive getaway, which is bad news for airlines.”

BT

“It says something about the shifting dynamics of the global economy that an Indian firm like conglomerate Reliance Industries could be about to launch a bid for control of British telecoms giant BT.

“The reports come after a private equity bid for Telecom Italia which suggested the whole sector was in play.

“Telecoms stocks have been as unloved as a cold caller on Christmas Day, and this is reflected in depressed valuations.

“Reliance itself was outbid on a deal for control of a Dutch unit of T-Mobile as recently as September, and it may have rivals for its apparent interest in BT. French billionaire Patrik Drahi, the founder of Altice, has been steadily building up a position in BT and Deutsche Telekom already has a sizeable stake.

“It will be interesting in this context to see if this rumoured move by Reliance flushes out other parties and dials up a bidding war for BT.

“You can understand why BT might attract interest. Despite its substantial pension liabilities and debts and iffy track record, it has a near monopoly position in the UK’s broadband network. And, for all its recent woes, BT has the capacity to generate substantial cash flows.”

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