FTSE shake sends jitters around market

Blue chips are holding onto their cash, with net holdings up at 41 per cent year on year, figures from Capita Asset Services have revealed.

Net cash held by FTSE 100 companies reached £53.5bn – a £15.6bn increase year on year, while firms were reducing their debt in what seems like increasing caution among the UK’s largest entities.

Justin Damer, commercial director for Capital Asset Services, said that many companies were “running extremely conservative balance sheets”, with rising cash and lowering debt levels demonstrating a “desire to keep borrowing levels low”.

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He added: “Dividends to date of £70bn have barely dented annual cash flows, and investment, though it is rising, is still not at levels at which big firms need to borrow.

“Continuing to hoard cash, even as the economy has gone up through the gears, will prove unpopular with investors, who resent companies sitting on huge cash piles earning low returns.”

Mr Damer pointed to figures that showed if companies were to return their gross cash piles to shareholders completely in 2014, the forecast payout from FTSE 100 companies for the year would be £236.5bn – 2.4 times the £98.5bn forecast for this year.

The news followed a 111 basis point drop in one day last week, when the FTSE 100 fell 1.69 per cent, the biggest percentage fall in one day since 27th January.

It closed at 6,446, the lowest closing level since 13th December 2013, although recovered to 6,546.07 as at market opening on Monday 6 October.

Laith Khalaf, senior analyst for Bristol-based Hargreaves Lansdown said: “Markets are prone to periodic corrections and we have actually sailed through a pretty smooth 18 months, so it should come as no surprise to encounter some choppiness. Investors should keep focused on the long term, and try and ignore daily movements as much as possible.”

Adviser view

Gavin Haynes, managing director of Bristol-based Whitechurch Securities, said: “The FTSE 100 has been trading in a range for the past 12 months and we now need to see top-line earnings growth come through. Perhaps the recent correction might present a buying opportunity.

“For the large companies, obviously the strength of sterling has made people a little cautious about exporters, which can affect the blue chip companies. Certainly we do not see it as doom and gloom. We expect returns to normalise, perhaps high single-digit returns. We are not pessimistic about it. Our core exposure is still in the UK market, particularly with dividend-producing shares.”