- UK is the best performing major market this month
- FTSE 100 aided by big oil-price gains and weak pound
- FTSE 250 flat on the month
For most major markets September has been something of a washout with the S&P 500 index losing 4%, the Nasdaq 100 off 4.5% and Germany’s DAX down 3%.
A key driver of weakness has been the relentless rise in bond yields, which hit their highest levels since 2007 in the US with 10-year treasuries touching 4.6% this week, up from 4% at the end of August.
Rising bond yields increase the cost of finance for companies and reduce equity valuations.
UK TOPS THE BIG LEAGUE
The UK has been a relative bright spot with the FTSE 350 index gaining 3% but this masks a big divide between the blue-chip FTSE 100 and the domestically-focused mid-cap FTSE 250 which is flat on the month.
In other words, all the gains have come from the largest companies, driven in large part by the big gain in oil prices, with Brent Crude up a whopping 9.5% over the month.
Also contributing to FTSE 100 strength was weakness in the pound which lost nearly 4% against the US dollar, giving a boost to overseas earners which feature heavily in the index.
Integrated oil groups BP (BP.) and Shell (Shel) are the biggest FTSE gainers this month up 11.4% and 10.6% respectively.
With many investors shunning the oil giants on environmental grounds the shares have become optically lowly-valued trading on single digit P/E (price-to-earnings) ratios.
Freddie Lait, fund manager and founder of Latitude Investment Management, told Bloomberg this week that his funds hold both stocks because they offer very attractive free cash flow yields.
While historically the firms ploughed all their operating cash into investing in future supply, today the companies pay out a big chunk to shareholders via dividends and buybacks.
Energy services company Hunting (HTG) and oil and gas developer Ithaca Energy (ITH) top the FTSE 250 leader board, gaining 28% and 24% respectively.
Meanwhile, technology services provider Computacenter (CCC) and housebuilder Vistry (VTY) are up around 18% apiece. Computacenter reported better than expected first half trading (8 September) amid resilient demand from its largest customers.
Shares in Vistry jumped 14%, the most in three years, on 11 September after the firm reported a significant increase in first-half completions and stuck to its full-year guidance.
