The FTSE 100 is once again feeling the love. The UK’s blue-chip stock index popped 12.4 per cent in November, its best monthly performance since January 1989, when Kylie Minogue and Jason Donovan dominated the British singles chart with “Especially For You”.
For once, the British index bettered its US counterpart: the S&P 500 returned 10.8 per cent over the month. China’s CSI 300, meanwhile, gained 5.6 per cent.
It’s all because of the London market’s high proportion of so-called value stocks — unloved shares typically found in sectors closely linked to an economic recovery. Such shares surged last month as vaccine breakthroughs brought hope of an earlier end to the coronavirus crisis. Energy, financials and basic resources — three sectors commonly associated with value — make up more than a third of the FTSE, Goldman Sachs analysts point out, while it holds a fraction of the tech stocks that dominate Wall Street.
It is a little too early for the triumphant final chorus. The FTSE is down about 16 per cent since January, in dollar terms, while the S&P has gained 12 per cent. The even more tech-heavy Nasdaq 100 has soared 40 per cent. With Covid-19 vaccines in sight, the divergence suggests lockdown trades have only sped up a shift in investment towards digital industries.
All of which demonstrates the bigger challenge for the UK benchmark, and the same as that facing a veteran pop singer: how to remain relevant. It is the US stock market that has mimicked Kylie’s talent for reinvention, as tech has gradually replaced conglomerates and industrials in its upper reaches, while the FTSE is still cranking out the same old hits: banking, oil and commodities. London’s telecoms companies took part in the dotcom rush two decades ago, but this year’s narrower tech rally has passed it by.
Still, there could be further crooning for the FTSE when the pandemic abates. A recovery in energy demand would lift its oil majors. A move higher in bond yields, as economies strengthen, would help its struggling banks.
Investors may also continue with November’s bet that tech is overbought. Citigroup analysts argue that the S&P’s high weighting for the IT sector and related businesses — about 35 per cent — leaves it “lopsided”. In that context, the FTSE looks like a useful hedge.
But another bumper month will not fix the UK index’s longer-term problem. Its fortunes continue to rest on how much juice can be squeezed out of the old economy, rather than the new.
Hyve passes through the event horizon
The enemies of a plan, as former UK prime minister Harold Macmillan may or may not have said, are events, writes Bryce Elder.
Hyve had a plan of the three-year type. It was due to conclude in May, when instead the trade show organiser delivered a rescue rights issue. Covid-19 had blown a hole through Hyve's balance sheet that was too big to plug with an emergency share placement, forcing the company to go to all shareholders for survival funds.
Misfortune perhaps, but Hyve has spent its life being blown off course by events. It was once known as ITE, which started out as an international introduction service for Russian businesses following the dissolution of the Soviet Union. Its London float in 1998 preceded the rouble crisis by six months.
All subsequent attempts to dilute Russia’s influence have resembled Sideshow Bob navigating a field of rakes. Plunging oil prices hobbled its push into Asia, expansion into Turkey preceded a local bank run, Pakistan joined the fold while troops massed along the Kashmir border, etc. Until quite recently, Russia still provided about half of group revenue, albeit with the politics of the Crimean Peninsula occasionally erasing returns.
The return of founder Mark Shashoua as chief executive in 2016 stepped up diversification efforts though timing remained inopportune. The 2018 purchase of a UK division came as Brexit trade talks unravelled and two Las Vegas retail trade fairs were bought heading into the Covid-19 shutdown.
Hyve’s full-year loss to September was unsurprisingly grim. More important was its £163m of available liquidity, not including pending insurance claims, versus cash burn of up to £6m a month. May’s cash call now looks big enough to guarantee survival while awaiting a vaccine rollout. The stock has recovered to a 40 per cent premium versus the 69p issue price, having started November deep under water.
Optimism is rational. Business-to-business exhibitions will lead the reopening of the global trade circuit as corporate events are easier than consumer gatherings to keep sanitised, at least inside the conference hall. Delegate numbers may fall but online attendance has the potential to become a complementary business rather than a substitute. Hyve will exit the crisis with a better business mix and a stronger balance sheet than many of its rivals.
The only catch is the valuation, which at almost 20 times 2019’s continuing earnings has already priced in a smooth recovery. Yet mistimed deals and balance sheet repair have since flotation diluted every Hyve share in issue more than 10 times over, making it obvious who ends up paying for the unpredictability of events.
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