The FTSE 100 ticked higher at the start of the week as its material weighting towards energy continued to offer some ballast during the Iran conflict.
Oil prices were higher again and Asian markets were lower as fighting in the Middle East rumbles on. By the time markets opened in Europe, oil was a little off its highs for the session. Over the weekend, Iran’s foreign minister Abbas Araghchi said the strategically important Strait of Hormuz was only closed to the US, Israel and its allies.
This potentially opens the door for oil and natural gas to flow to the likes of China and India which account for a large proportion of the shipments through the Strait.
Saudi Arabia is also using its East-West pipeline to divert oil to the Red Sea with tankers loading from state oil company Aramco’s terminal.
Donald Trump is seeking to pressure NATO partners and others to help police the Strait of Hormuz. The situation is not close to being resolved but investors seem reassured by signs of action and US futures prices point to modest gains when Wall Street resumes trading later.
Defensive names, including in the utility sector, property stocks and housebuilders were among the fallers in London while BP and Shell, as well as a smattering of industrial stocks, were among the gainers.
Until we get some signs of a meaningful resolution to the situation in the Gulf, the markets are likely to remain choppy.
Thames Water
An improved rescue bid for Thames Water keeps hopes alive that the UK utility could avoid nationalisation. Consortium London & Valley Water has proposed to inject £3.35 billion of new equity and up to £6.55 billion in new debt. The deal is far from done and dusted, as regulators and the company’s stakeholders must review the terms.
Like a leaky tap that has been dripping for years, it’s clear the problem must be fixed – the big unknown is when it will happen. Thames Water seems to have been on the brink for years and yet a permanent solution still seems like a story for tomorrow.
CRH
Having already shifted its primary listing to the US, building materials specialist CRH is to now turn its back completely on London. The development, though not seismic, is another sign of London’s diminished status in the roster of global markets. Companies who switch their main listing to the US often pledge to keep a presence in London, but CRH’s actions suggest that is no longer a given.
CAB Payments
Shareholders in cross-border payments outfit CAB Payments may be relieved to see an external party emerge with a bid for the company after its major shareholder – Helios – had tried to take the firm private with what directors characterised as a low-ball offer.
The new proposal from US financial services group StoneX is higher than Helios’ bid and investors will now be watching if the first bidder comes back with improved terms.
Scottish Mortgage
Dan Coatsworth, head of markets at AJ Bell, comments:
Scottish Mortgage is seeking shareholder permission to amend its investment policy so that it can put more money into private companies. The proposal is partially down to existing private holdings becoming more valuable and accounting for a bigger chunk of its assets, such as its stake in SpaceX, and selling certain public holdings to fund share buybacks which has a direct impact on the public/private holdings balance.
Scottish Mortgage’s strategy is to identify tomorrow’s market leaders and inevitably that means hunting for opportunities among private companies. It tries to get in before the crowd and back businesses through additional funding rounds.
There are typically cycles with private investments, where investors either love or hate them. For example, growth-style investment trusts such as Scottish Mortgage suffered from the spike in inflation and interest rates four years ago and high-growth quoted tech company valuations were hit. That led to its private holdings becoming a bigger component of its portfolio, much to the concern of investors and analysts who worried about the lack of transparency in private markets. Valuation updates can be irregular and it’s often hard to know what’s going on with private businesses.
Interest in private companies is now picking up again thanks to SpaceX’s chunky valuation and AI success with Anthropic and OpenAI – with all three companies expected to join the stock market over the next year. Investors might be asking Scottish Mortgage who’s the next big thing after this trio, so it makes sense that the trust wants greater flexibility to go and hunt for opportunities. Many promising tech firms are staying private for longer and Scottish Mortgage needs to look beyond equity markets for tomorrow’s potential champions.
However, the issues around a lack of transparency, irregular valuation updates, and liquidity, haven’t gone away with regard to private companies. That’s perhaps why Scottish Mortgage is only asking for a relatively small change to its investment policy rather than asking investors if it can go big. If SpaceX’s IPO does go ahead as expected, Scottish Mortgage would suddenly have a lot less exposure to private markets as Elon Musk’s rockets-to-satellites group currently represents a hefty chunk of its private positions.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
