The FTSE 100 reversed Monday’s losses on Wednesday and is set to close up by 1.5%, at around 7,080. News that Chinese property developer Evergrande has “resolved” scheduled debt repayments appears to have lifted the market.
Investors had been worried about big potential losses on Chinese property debt. I don’t know what has happened behind the scenes in China, but it’s good news for market bulls. I’ve been taking a look at today’s top movers.
China fears ease – but is it enough?
The FTSE’s big miners were among the hardest hit earlier this week. Investors feared that a slowdown in China’s huge property market would hit demand for steel, copper, and other raw materials.
Miners are now pulling back some of that lost ground. Chilean copper miner Antofagasta climbed nearly 5% on Wednesday, while rivals Glencore, Anglo American, Evraz, and Rio Tinto all gained between 2% and 4%.
The FTSE 100 has three financial stocks with heavy exposure to China — HSBC, Standard Chartered, and Prudential. All three gained around 4% today, as fears eased that banks could face big losses on Chinese property debt.
Personally, I’d take a cautious view on this situation. I think it’s still early days. Even if Evergrande and other developers are protected from serious losses, I suspect we’ll see a slowdown in China’s overheated construction market. That could have a negative impact on FTSE 100 miners and banks.
Gaming winners
Today’s other big winners have nothing to do with China. The final two big risers in the FTSE 100 today were both gambling stocks.
Ladbrokes-owner Entain was the index’s biggest riser, gaining 6% on takeover news. US sports betting firm DraftKings is trying to buy Entain, and has increased its offer from 2,500p per share to 2,800p per share.
This new offer is 46% above Entain’s closing share price on 20 September and values Entain at 25 times 2022 forecast earnings. Potentially, I think it’s quite a generous bid. However, DraftKings is only offering 630p per share in cash to Entain shareholders. The remainder of the offer would be paid in new DraftKings shares.
I suspect that this is the reason why Entain shares are still only trading at 2,395p. DraftKings is still loss-making and its shares look expensive to me, on 24 times forecast sales. In contrast, Entain is profitable and has an exciting joint venture in the US with MGM.
If I was an Entain shareholder, I’d wouldn’t want to swap my shares for DraftKings stock. If enough Entain shareholders feel the same, the bid could fail — or DraftKings’ share price could fall sharply, reducing the value of the offer.
Wednesday’s FTSE 100 losers
As I write, only 13 FTSE 100 stocks are expected to closer lower today. There haven’t been any big losers, giving shareholders a welcome respite after this week’s volatility.
Water utilities Severn Trent and United Utilities are set to be the day’s biggest FTSE 100 fallers, but even they’ve only logged a modest 1.5% decline. Small change.
Market bulls were the big winners today. But tomorrow could be different. Check back this time on Thursday for the latest market news.