Market Report: Cable & Wireless overcomes downdraft

The telecoms group Cable & Wireless was among the few blue chips to close with gains last night, outperforming the market as bargain hunters piled in.

Citigroup lured the bulls, arguing that C&W's shares, which underperformed the market last year, were set to change course as the recovery takes root. The upcoming demerger, which will see the company separate into its Worldwide and CWI businesses, should also drive confidence in the fact that "forecasts have been kitchen sinked", opening the door to a rebound in the share price, the broker explained, as it changed its stance on the stock to "buy" from "hold" and revised its target on the share price to 170p from 155p. "Investing in C&W is still not plain sailing. But we argue [that] the March demerger can help reveal hidden value to make it worth the adventure," Citi said, boosting the shares by 1.4 per cent, or 2.1p, to 148.1p, and noting that the split should help differentiate CWI's investment case from Worldwide's, thereby unlocking the "hidden value".

C&W was just behind Shire, the specialist pharmaceutical group, which led the way on the benchmark index, rising by 2.6 per cent, or 32p, to 1261p after JP Morgan sparked hopes for its Intuniv attention deficit hyperactivity disorder drug. The broker said that, following recent management comments on the initial uptake of the drug, it had reviewed the opportunities presented by Intuniv, and in turn had concluded that its estimates for the drug's peak market share of 3 per cent was too conservative.

"Intuniv should be a key swing factor for earnings upgrades this year," JP Morgan said, raising its Intuniv peak ADHD market share figure to 5 per cent.

Separately, drug company stocks, including GlaxoSmithKline, which was broadly unchanged at 1283.5p, down 1p, and AstraZeneca, which was 14p weaker at 3053.5p, were in focus following the election of a Republican to fill the late Edward Kennedy's US Senate seat. The election may have serious implications for the Obama administration's healthcare reform proposals, as the results means that the Republicans now have enough votes to impede the President's plans in the Senate. Traders saw this as a positive for drug stocks, as it is likely to reduce the risk of more onerous reforms.

Overall, the FTSE 100 was under pressure, sliding by 1.7 per cent, or 92.34 points, to 5420.8, while the FTSE 250 fell to 9472.29, down 83.12 points. Traders lost their appetite for risk amid worries about further monetary tightening in China, with new reports suggesting that the country's banking authorities had instructed leading lenders to curb the availability of credit over the remainder of this month. The news weighed on equity, bond and currency markets.

In London, the miners were among the hardest hit, with traders worrying about the outlook for Chinese demand. There were fears that the monetary tightening could derail the recovery, depressing the Eurasian Natural Resources Corporation to 962.5p, down 64.5p, and Xstrata to 1142p, down 75.5p. They were not alone – Lonmin was 124p weaker at 1880p, while Antofagasta declined to 977p, down 62p.

Financial sector stocks also suffered as traders moved out of riskier plays. The news from the US, where Morgan Stanley and Wells Fargo reported quarterly profits, but Bank of America remained mired in the red, did little to lift sentiment, with Barclays declining 11.25p to 300.85p and Standard Chartered losing 51.5p to 1508p. Royal Bank of Scotland fared better, retreating by 0.34p to 38p amid reports that JP Morgan was nearing a deal to buy RBS Sempra, the bank's commodities joint venture.

Further afield, Croda International was 25p behind at 795p after Credit Suisse moved it to "neutral" from "outperform" in a chemicals sector round up. "For the fourth quarter of 2009, the emphasis was firmly on 'quality' growth with its more defensive characteristics," the broker sad. "For the next two quarters we believe the focus will move back to [a] sales recovery and away from long term growth. We believe it is time to look again at the more cyclical growth stocks."

On the upside, the oil services specialist Wood Group firmed 3p to 344.7p thanks to some words of support from Bank of America Merrill Lynch, which said the stock was one of its top picks in the sector. "We see Wood... posting healthy earnings growth in the medium term, driven by the strength of its engineering business, and the recovery we see in end markets in North America," Merrill said. "As a result, the stock trades on a cheap valuation and has potential for consensus earnings upgrades."

Back on the downside, and Spectris, the precision instrument and controls maker, was 14p weaker at 776p after Goldman Sachs took the stock off its widely followed "conviction buy" list, citing the recent run of strength in the shares. The broker remained positive, however, keeping the stock at "buy" and noting that the valuation – Spectris trades on a multiple of 13.1 times earnings forecasts for 2010 – remained relatively undemanding.