FT 2/4 INVESTMENT: Share rush hits other blue chips
By Vincent Boland, Capital Markets Editor
Fund managers scrambling to buy additional shares of Vodafone AirTouch in anticipation of victory in its battle to take over Mannesmann have been heavy sellers of other liquid UK blue chip stocks in recent days.
Much of the volatility on the London Stock Exchange in the past few weeks is being blamed on the rush into the shares of the UK mobile telephone group.
Market strategists said on Thursday that helped explain the stock market's lacklustre reaction to the merger of drugs groups Glaxo Wellcome and SmithKline Beecham, as well as to the Scottish banking tussle over National Westminster.
"There's a view in some camps that you don't need to own some sectors any more because they represent such a small part of the Footsie," one London-based fund manager said.
If the merger is completed, Vodafone-Mannesmann is expected to have a 15 per cent weighting in the FTSE 100 index. That means that fund managers, most of whom are already overweight in Vodafone but will be well below a post-merger benchmark weighting, must buy more shares.
Fund managers say most of them are in the same position - except for index funds. This type of fund accounts for about 20 per cent of UK funds, and usually waits until the index weighting has been adjusted before buying.
Analysts said investors were poring over portfolios for the most obvious "sell" candidates, with bank stocks among the main casualties. Lloyds TSB has tumbled by 19 per cent since January 1, Barclays by 18.5 per cent, and National Westminster by 11 per cent.
They are not the only stocks on the skids. Tobacco group BAT Industries has seen its share price slide 20 per cent in the same period, while British Telecommunications is down 35 per cent.
BT shares tumbled 18 per cent on Wednesday after reporting poor interim profits. Many investors are understood to have taken that as their cue to bail out, raising the cash to buy additional Vodafone stock.
Nearly 200m BT shares were sold, although the steep fall was halted on Thursday when the shares ended 1p lower at 975p.
Vodafone's share price has risen 20 per cent since January 1, although that performance masks extreme volatility. The stock, which was trading at about 275p before it launched the Mannesmann bid, hit a high of 392p. It fell 17p on Thursday to close at 368«p in another day of huge volume.
The squeeze in Vodafone might be eased if, as expected, Mannesmann's German shareholders - many of which do not invest outside the euro-zone - become heavy sellers of the Vodafone stock they would receive for their stakes, if the merger goes through. |
