Technology stocks tumbled yesterday as the benchmark equity index fell alongside global markets, suffering its biggest weekly loss in a month.
Financial services and investment management group Hargreaves Lansdown was among the top FTSE 100 fallers, off 5.1 per cent. Traders said the shares fell after Morgan Stanley cut its price target for the stock.
The investment bank cut the target price to 1,495 pence from 1,670 pence and said in a note that pressure on pricing and weaker net interest income will weigh on Hargreaves Lansdown’s earnings over the coming year.
The blue-chip FTSE 100 index closed down 80.27 points, or 1.21 per cent, at 6,561.70 points. The index is down about 2.8 per cent this year, despite getting close to its best level since early 2000 in January.
Technology companies ARM and Sage were among the worst-performing stocks on the FTSE. Their declines came after a 3.1 per cent slump overnight on the US technology-dominated Nasdaq index.
ARM, whose chip designs feature in most smartphones, fell 4.5 per cent in relatively brisk trading. Software developer Sage declined 2.1 per cent.
Frothy valuations are keeping investors from putting more money to work in equities. The FTSE 100 is trading on a 12-month forward price/ earnings ratio of 13.2 times, against its five-year average of 11 times, Thomson Reuters Datastream shows.
Also acting as a deterrent, analysts have been steadily lowering profit forecasts for UK companies since the start of 2014, data from Thomson Reuters Datastream shows, a signal of potential tough times ahead for the index.
“We do think the markets are vulnerable here,” said Ian Richards, global head of equities strategy at Exane BNP Paribas. “From a micro perspective, we’re on valuations above normalised levels (and) there’s an earnings backdrop which is characterised by downgrades.”
Revised earnings per share estimates for UK companies over a rolling three-month period have worsened since late January. The average estimate has fallen seven per cent in the past three months, compared with a 3.2 per cent drop in the three months to late January, according to Datastream.
Analysts said the revisions reflected the exposure of many FTSE 100 companies to emerging markets. The relative strength of sterling against the euro also cut into UK corporate profits.