UK markets lag during November
Most major equity markets posted gains in November despite some short-term volatility that was primarily triggered by macroeconomic data and speculation about the future path of US monetary stimulus. However, despite mounting evidence the UK economic recovery is gathering momentum, UK stockmarkets lagged most of their developed peers during the month. Over November as a whole, the FTSE 100 index declined 1.2%, the FTSE 250 index fell 0.1%, and the FTSE SmallCap index fell 0.7%.
The Organisation for Economic Co-operation & Development (OECD) has cut its forecast for global economic growth in 2013 to 2.7%, citing weakness in emerging economies, although it believes that growth will pick up by 2015. In contrast, the organisation raised its forecast for UK economic growth this year to 1.4%. Elsewhere, the Office for National Statistics (ONS) confirmed that the UK economy had expanded by 0.8% during the third quarter of 2013.
Rarely far from the spotlight these days, the banking sector attracted a considerable amount of attention during November. In particular, Royal Bank of Scotland (RBS) defied expectations with an announcement it would not divide its operations into so-called ‘good’ and ‘bad’ banks but would instead set up an ‘internal bad bank’. The move did not follow the advice laid out by the Parliamentary Commission on Banking Standards. The credit rating of RBS was subsequently downgraded by Standard & Poor’s (S&P), and was also assigned a ‘negative’ outlook by the ratings agency. As justification, S&P cited the bank’s restructuring plans and also pointed to “considerable uncertainties” over RBS’s exposure to future litigation.
Elsewhere in the banking sector, HSBC announced a 30% rise in third-quarter pre-tax profits that was fuelled by robust performance in the company’s home markets of the UK and Hong Kong. Looking ahead, HSBC sees “reasons for optimism with some evidence of a broadening recovery”. Meanwhile, the Bank of England’s Financial Policy Committee is to consider whether it needs additional powers to control the amount of capital that UK banks must hold on their balance sheets.
Following the high-profile initial public offering of Royal Mail in October, leisure group Merlin Entertainments was floated on the London Stock Exchange during November. The company – whose assets include Alton Towers, Legoland and Madame Tussauds – was floated at a price of 315p per share, which valued the business at almost £3.2bn.