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WEEKLY MARKET ROUND-UP – 02/10/20

On the rise

As the global lockdown continues to unwind, the number of covid-19 infections continues to rise. Daily cases hit a new plateau in September as the official death toll passed the one million mark. While market sentiment currently appears unaffected by the new milestone, the consequences could start to play out should further restrictions be introduced.

Bargain hunters swoop on UK banks

The UK’s beleaguered banks perked up on Monday (28 Sep) led by HSBC, which saw its shares surge more than 10% after the Chinese insurance giant, Ping An, added to its stake. Meanwhile, shares in Lloyds and Standard Chartered jumped almost 9% on the day while banking stocks across Europe also saw gains.

Shares in HSBC have more than halved this year and, following a 9% fall last week, precipitated by a money laundering scandal and its becoming a target of Chinese state media, its shares hit a 25-year low.

As Quilter Investors head of dealing Jonathan Callow explains, “Don’t mistake the move by Ping An as a Chinese vote of confidence. HSBC is still very much in the firing line,” he says.

“To us, this surge higher is a classic dividend play. Banks like NatWest and Lloyds are ready to resume paying dividends if the UK ‘ban’ is lifted and this could happen as soon as December,” says Callow. “At Monday’s prices, if HSBC’s dividend had been restored this would have delivered a yield of around 12%.”

Lockdown takes bite out of Greggs

UK bakery chain Greggs has warned the outlook for its business remains uncertain due to the impact of the coronavirus pandemic, despite reporting a better-than-expected quarterly trading update.

The business, known for its steak bakes, sausage rolls and recent range of vegan snacks, said activity had picked up in September, following a slower August, but it was not enough to stop its shares dipping around 3% on Tuesday (29 Sep). It’s share price has now fallen almost 50% from its pre-lockdown highs.

Greggs noted that like-for-like sales in the three months to 26 September averaged at 71.2% of the level in the same period last year, and said it had started consultations with staff and trade unions regarding reduced hours and potential job losses.

It noted that while the business had reopened seating in 100 of its larger shops it expects business to remain below normal for the foreseeable future, with rising coronavirus infection rates leading to potential further restrictions on customers and increasing risks of supply chain disruptions.