Hobson: FTSE Dip is Buying Opportunity

THE WEEK: Morningstar columnist Rodney Hobson is not worried by the FTSE falling and hopes the dip lasts long enough for him to buy more shares for his ISA in the new tax year

Rodney Hobson 27 March, 2015 | 1:25PM
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The airline industry was in the spotlight this week following a tragedy in the French Alps. While airlines moved to tighten up cockpit security in the wake of the crash, EasyJet shares were also on the move following its trading update.

Sometimes you see the reaction of a company’s share price to an announcement and you wonder what on earth you had missed. So you read through the statement more carefully but, no, you still can’t understand the reaction. Thus it was with the latest trading update from budget airline EasyJet (ESJ).

Figures covering the first half year to the end of March were decidedly better than those included in the previous update less than two months earlier. Revenue per seat has edged higher and the gain from the fall in the cost of fuel is at the top end of the projected range.

Best of all, the first half could actually produce a small profit compared with a loss of £53 million last time. At worst, the loss will be below the £10-30 million range estimated at the end of January.

It is true that the rise in the dollar against the pound will reverse some of the gains in the second half but not to any great extent as things stand.

Readers will know I am not keen on airline shares but it is hard to account for the fall of nearly 4% in EasyJet shares immediately after the announcement. Why investors who had pushed the shares up from a low of less than £13 in August to nearly £19 earlier this week should suddenly bail out is a mystery. The shares were, after all, only back to where they were last April before a steep descent over the next three months.

If, unlike me, you are keen on airline shares then EasyJet is worth a look. Fortune favoured those brave enough to buy in on the drop, for the shares recovered a little ground later in the day and the upward momentum continued.

Short-lived Highs for the FTSE

So the surge in the FTSE 100 index above 7,000 points proved short-lived. Another bout of collywobbles among resource stocks drove the index down sharply in mid-week after it has set several new highs.

In recent weeks this type of sharp fall has been equally short-lived and I expect that pattern to continue, especially as small investors will be piling more money in before the end of the ISA year. I know each investment is a drop on the ocean but the ocean is made up of drops of water.

The shape, size and darkness of the clouds on the horizon have not changed. Japan is sinking towards deflation but we already knew that the Japanese economy was sluggish and will continue to struggle. Its contribution to the Asian economy has been muted for 20 years or more.

The situation in Europe has, if anything, improved a little. The day of reckoning for Greece keeps getting postponed and there is no sign yet of contagion in other South European countries. Ireland is now well out of the mire and France continues to improve against all expectations, including my own.

This is reflected in the euro, which has recovered quite a bit of ground since going into freefall. Fears that the UK would be priced out of European markets have eased considerably.

On the whole I remain optimistic for the UK economy. I am staying fully invested and in a sense I hope that shares do not rise too quickly so that I can get a slab of my next ISA entitlement away in just over a week’s time.

Copper Mine Closures Hit Antofagasta

It never rains but it pours, and it has certainly been pouring in the Atacama desert in Chile, where they are normally lucky to get a whole inch of rain in an entire year. It’s so bad that copper miner Antofagasta (ANTO) has had to close three mines for safety reasons.

It can continue to process its existing stockpile for a while but will need to get those mines reopened as soon as possible.

Antofagasta has seen its shares slump from 850p in July to around 730p earlier this week and the mine closures promptly knocked another 10p of the shares. That’s actually not too bad a battering compared with the wider resources sector.

The shares will recover eventually along with the copper price. It’s quite a risk but they could prove an interesting gamble on a global economic recovery.

Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice. His views are not necessarily the views of Morningstar UK.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.