UK's FTSE hit by U.S. politics, China slowdown worries
(Updates with closing prices)
* Political stalemate on U.S. debt issues hits equity
markets
* FTSE implied volatility index at 3-week highs
* UBS (Berlin: UBRA.BE - news) sticks to UK, Europe overweight
By Toni Vorobyova
LONDON, Oct (KOSDAQ: 039200.KQ - news) 7 (Reuters) - Britain's main share index fell on
Monday, with broad sentiment bruised by political stalemate over
the U.S. debt ceiling, and with luxury goods group Burberry hit
by concerns over a slowdown in its sales in China.
The U.S. government moved into a second week of shutdown,
raising the risk that a compromise will not be reached in time
to meet an Oct. 17 deadline for raising the debt ceiling and
averting a potential sovereign default.
Although most investors still expect the issue to be
resolved, nervousness is increasing, with people opting to sell
or stay out of the market altogether.
"This shutdown is coupled with the debt ceiling issue and,
until we see a firm resolution on that, I think we will see a
lot of investors wait on the sidelines," said Jordan Hiscott,
trader at Gekko Global Markets.
Last week, FTSE volumes were the seventh lowest this year,
with activity around 12 percent below the 2013 average.
Some of the top year-to-date performers succumbed to
profit-taking as implied volatility on the FTSE 100 (FTSE: ^FTSE - news) - a crude
barometer of investor risk-aversion - hit three-week highs
. Among them were Easyjet (Other OTC: EJTTF - news) , down 2.9 percent to
1,260 pence, and Sports Direct, which fell 4.3 percent
to 674.50.
Traders said some investors were also liquidating positions
in order to free up funds to invest in the privatisation of the
Royal Mail postal service, for which order books are due to
close on Tuesday.
The FTSE 100 index closed down 16.60 points, or 0.3 percent
at 6,437.28.
Adding to U.S. political woes were resurgent concerns about
the strength of the Chinese economy as the World Bank cut its
2013 and 2014 growth forecasts.
The news hit miners as well as luxury goods group Burberry
, whose chief executive told French newspaper Les Echos
that China's slowdown could be more than just a passing phase
for the luxury goods sector.
Burberry shares dropped 1.2 percent in heavy volume.
"Burberry has a good brand ... (but) we get more nervous
when companies have grown very fast in new markets as it creates
more risk. We wouldn't necessarily want to pay up for the risk
that some of that growth isn't sustainable," said David
Crawford, fund manager at City Financial. He prefers Unilever
for its "sustainable competitive advantage".
Unlike some short-horizon investors, stock-focused Crawford
has not adjusted positions over the U.S. political situation,
but said he could use any market weakness to add cheaply to long
positions or take profits on short bets.
"The market has only moved down 5 percent or so, so that's
not huge for us," he said. "If they move down another 5 percent,
then things might get a bit more interesting."
UBS strategists, meanwhile, trimmed tactical allocations to
U.S. equities in part due to the political uncertainty, but
stuck to strong overweights on UK and Europe.
"Europe is a good play because the last time there was a
problem in the United States with the debt ceiling, the place
that did well was Europe. So Europe might be seen as a sort of
safe haven while the U.S. is in a state of turmoil," said Ramin
Nakisa, global asset allocation strategist at UBS.
"It's almost an implicit hedge against a bad outcome in the
United States."
(Editing by John Stonestreet)