The FTSE 100 was marginally higher on Wednesday as defensive names provided support for the index amid softness in commodity companies.
It would be a little dramatic to label today’s move into defensive companies a broad rotation into safe havens away from cyclicals, but there is definitely a mild risk off tone within the FTSE 100 index.
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Utility and pharmaceutical companies were among those heading up the leaderboard while banks and mining companies were having a weaker session.
The defensive nature of the FTSE 100 meant it looked set to outperform peer indices amid a slowdown in the China rally and questions about growth and interest rates creeping back into the narrative.
“The wave of enthusiasm which greeted the kitchen sink stimulus from the People’s Bank of China is ebbing away, given the lack of detail for further fiscal stimulus. Banks in China might be ready to lend, with lower rates and deposit requirements on offer, but if the demand isn’t there, it’s still set to hold back an economic rebound,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“Investors had been hoping for more details on an expected fiscal stimulus, hoping tax breaks would reinvigorate consumers and companies to borrow, but the vague plan put on the table yesterday by authorities disappointed.”
Mondi was the top riser after announcing an acquisition of a Western European-focused Schumacher Packaging which is thought to increase Mondi’s capacity by over 1 billion square meters.
“Mondi has wasted no time in expanding its empire since pulling out of the race to buy rival packaging firm DS Smith earlier this year,” said Russ Mould, investment director at AJ Bell.
“It’s struck a deal to buy European assets from Schumacher Packaging, boosting its capacity to make sustainable packaging which is increasingly in demand from customers taking a more environmental approach to their business. The deal put Mondi near the top of the FTSE 100 leaderboard.”
Investors may be rubbing their eyes today with Rio Tinto also announcing an acquisition in a welcome change to the onslaught of overseas entities swooping in on UK companies.
Rio Tinto is bolstering its exposure to lithium through the acquisition of Arcadium Lithium in a $6.7bn deal.
“This is a classic attempt to buy the dip for Rio, snapping up some high-quality Lithium assets when spot prices are around 80% down on their highs,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown
“It’s a good time to shop for counter-cyclical assets, and this deal helps propel Rio’s lithium portfolio to new heights, with it already having exposure through its Rincon and Jadar projects. This so-called white gold, a key component in the energy transition with uses in areas like electric vehicles, is the material that differentiates Rio from key rivals like BHP.”