This was noticeably different to the broader market which was down more than 1%, pulled lower by plunging Chinese stocks that suffered their largest one day fall since 2007.
These two opposing moves speak to a broader theme within the UK market that is likely to be explored over the course of this week and the following few as earnings season continues apace – anything exposed to UK consumers has been doing fairly well in recent months, while stocks with exposure to China have been hit rather hard.
Granted, the collapse in Chinese equities has a great deal more to do with the bursting of a speculative bubble than the fundamental health of the Chinese economy, but the point stands, especially given continued concerns about the outlook for growth there. As proof of this one just has to look at the valuations of mining companies like Rio Tinto and Anglo American, who sell commodities into China, automotive companies like BMW or parts suppliers like GKN. Indeed, on the day, GKN was down around 0.8% and Rolls Royce fell over 2.2%.
For Eric Moore, manager of the Miton Income Fund, the health of the UK consumer is definitely noticeable.
“Consumption makes up around two thirds of GDP and the health of the UK consumer is clearly evident, they are benefitting from rising real wages, good mortgage deals, supermarket wars and low oil prices,” he said. But, he added: “The issue is the UK stock market does not look much like the UK consumer.”
It is partly for this reason that Moore says the one big thread still running through this earnings season is a desire to see any sign of earnings upgrades, although on current evidence he is not expecting to see much of it.
“In general the market continues to see earnings downgrades. On the numbers I have seen, earnings per share forecasts for the UK All Share have fallen by around a third in the past two years, at the same time valuations are up.
“At some point the market needs to see upgrades, because growth in general is quite weak,” he added.
Simon McGarry, senior equity analyst at Canaccord Genuity agrees that the UK economy is rather encouraging but says that what has been rather elusive is top line growth.
“There is a reasonable amount of bottom line growth and, by and large, those companies that are leveraged into the consumer seem to be doing rather well.” And, he adds there is a lot of self-help evident in much of the market that is encouraging.
