Last week in the markets

Shares back in favour a year after the collapse

By Andrew Webb, 5 March 2010

But sterling suffers at the likelihood of a hung parliament.

Investors continued to gain confidence in equities which headed higher this week, consolidating recent rises. Steady, if unspectacular daily gains through the week lifted shares across the world. But opinion polls in the UK indicated the probability of a hung parliament at this spring’s general election and undermined confidence in the pound, which slumped through the $1.50 level for the first time in ten months. The Conservative party’s narrowing lead in pre-election opinion polls suggest if the party wins this spring’s election, it will need to rely on support from minority parties to pass any legislation. Investors’ judgement is that a hung parliament is a recipe for political friction and inertia - quite the opposite of the decisive leadership required to guide the UK through an economic recovery and to cut the growing public deficit. In frantic trading, the pound slipped 3% against the dollar and lost ground to the euro and yen, before recovering a little poise later.

"In frantic trading, the pound slipped 3% against the dollar and lost ground to the euro and yen, before recovering a little poise later." Andrew Webb

Greece’s debt crisis eased somewhat, with the successful completion of a €5bn 10-year bond issue that was three times oversubscribed. The vote of confidence shows that for all the worry of past weeks, Athens is still able to turn to the market to raise funds.

The UK insurance company, Prudential, unveiled one of the biggest deals in corporate history this week, reaching agreement with state-controlled US insurance firm AIG to buy its Asian business, AIA, for £23.7bn. Prudential will have to raise a staggering sum of money from new and existing shareholders to fund the deal as AIA is a bigger company than Prudential. Prudential’s ambition has so far received a frosty reception from investors concerned it might have bitten off more than it can chew. In the two days following the announcement, its shares plummeted 19%.

Warren Buffett, arguably the world’s most successful investor, once again showed his ability to move the market, revealing he has raised his investment company’s stake in Tesco to 3%. His endorsement lifted the shares 3.2%.

This week marks the first anniversary of the low-tide mark for UK shares in the financial crisis. A good day on Wednesday, 3 March this year saw London’s blue chips rise 0.9% and contrasts strongly with the same day last year, when shares slumped more than 3%. Since that low point, the London market has risen 57.5%. Tom Stevenson writes more about what a year it has been in his column on this site. Next week is the anniversary of the low point for US and global shares.

At the end of the week, attention was focussed on US employment in anticipation of the monthly non-farm payroll data. While unemployment is still rising in the world’s largest economy, the rate is slowing. Investors were braced on Friday morning for a statistical blip caused by terrible weather in February.