Scottish Mortgage leads FTSE slide after surprise GDP slip

FTSE 100 slips 1% and UK mid-caps drop well over 2%, as news of an economic slowdown adds to recession fears.

UK shares tumbled this morning as news of a slowdown for the economy added to recession fears, with both domestic and growth stocks caught in the crossfire as Scottish Mortgage (SMT ) investment trust found itself deep in the red again. 

The FTSE 100 fell 76 points, or 1%, to 7,243, while the more domestically focused FTSE 250 slumped 2% on a slew of worrying data both at home and abroad. 

Recession fears were fuelled by the latest data on gross domestic product (GDP) from the Office for National Statistics (ONS), which reported a 0.3% contraction in the UK economy in April. That followed a 0.1% drop in March and was much worse than economists’ expectations of 0.1% GDP growth. 

Services were down 0.3% as human health and social work decreased, which the ONS blamed on the reduction in NHS test and trace activity. Production fell 0.6% as businesses continued to feel the impact of price increases and supply chain disruption.

‘While a recession is still a while away, it is looming on the horizon and its effects will begin to be felt in the UK well before we are officially in one,’ said Paul Craig, portfolio manager at Quilter Investors. 

Adding that the real picture today is ‘likely to be even starker’, Craig noted that the Bank of England still expected to raise interest rates again this Thursday in an attempt curb inflation.

The data followed Friday’s news that US inflation had resumed its rapid rise in May and was running at 8.6% annually, which continues to upset market. 

Richard Hunter, head of markets at Interactive Investor, said the latest print-out had seen investors ‘scramble for cover in anticipation of a more aggressive set of central bank moves’ and the US Federal Reserve’s next monetary policy meeting on Wednesday will now take on ‘added significance’.

‘While investors were relatively comfortable with a likely hike of 0.5%, the fresh inflationary pressure has had some questioning whether a rise of 0.75% could be on the table,’ he said.

Scottish Mortgage was the biggest faller on the FTSE 100, down 4.8% at 711p as investors worried swifter interest rate rises would pile further pressure on the portfolio of high-octane growth stocks, which see future growth discounted as rates and inflation rise.

Before today shares in the Baillie Gifford flagship had slumped 44%, cutting its market value to £10.8bn. They closed last week on a 12% discount to asset value, with the board having started to buy back shares in a bid to narrow the gap. Despite the slide in the growth sell-off, the trust remains the top-performing Global sector trust over five years with a 82.8% total shareholder return.

Whitbread (WTB), owner of the Premier Inn hotel chain, dropped 3.5%, or 96p, to £25.81, while housebuilder Barratt Developments (BDEV) lost 3.3% to trade at 478p.

Mexican silver miner Fresnillo (FRES) was one of a handful of stocks to make gains, up 8.5%, or 63p, at 812p.

The FTSE 250 suffered widespread losses, led by commodity trading and mining group Ferrexpo (FXPO), whose fortunes have waxed and waned with developments in the Ukraine, where it focused most of its operations. The stock was down 7.4%, or 12p, at 152p this morning, while the mid-cap index as a whole traded down 467 points, or 2.4%, at 19,206. 

Trustpilot (TRST), the online consumer review platform, shed 6.6% to 81.4p. It has had a troubled time since floating last year as growth stocks have suffered in the market rotation. Luxury car maker Aston Martin Lagonda (AML) fell 6.8% to 570p as short-sellers took interest in the stock.

Molten’s growth not rewarded

Among other investment trusts, Manchester & London (MNL ), which has a similar interest in high-growth tech stocks as Scottish Mortgage, tumbled 6.6% to 341.9p from a wide 21% discount to asset value.

Molten Ventures (GROW) exemplified the fear investors have of writedowns in private equity funds as markets tank and the economy faces recession. The high-tech fund dropped 4.5% to a two-year low 454.8p from a 46% discount at Friday’s close. This was despite annual results showing a 37% investment return in the year to 31 March from investments such as fintechs Revolut and Thought Machine, with the company forecasting revenues to portfolio companies would grow 77%, up from 66% last year.

Tintin Stormont, technology analyst at Molton’s joint broker Numis, said: ‘As confidence in the portfolio resilience builds, we see significant upside to the shares.’

 

 

 

 

 

 

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