Sector movers: Natural resources and financial stocks hammered in London

Natural resources, specifically mining, metals and oil stocks, and financials led the London market lower on Monday, as the City digested news of another selloff in China.

The FTSE 100 was down 1.14% or 74.68 points at 6505.13, while FTSE 250 was down 1.32% or 231.55 points at 17267.56 nearing the close of the session.

Earlier in the day, the Shanghai Composite Index plunged 8.47% marking its worst performance in three weeks. The drop was due to the release of data which showed industrial profits fell 0.3% in June and a decline in commodity prices.

Past the midway point in trading on the London Metal Exchange, three-month delivery contracts of copper (down 0.8%), lead (down 0.8%), nickel (down 2.0%) and zinc (down 0.8%) were all in negative territory.

Concurrently, oversupply issues and fears of a Chinese economic slowdown continued to hound oil markets. The Brent front month futures contract for September delivery was down 1.94% or $1.06 at $53.56 a barrel, while the WTI shed 1.27% or 61 cents to $47.53.

However, with selected metal contracts such as tin and primary aluminium staying in positive territory, midcap miners took bulk of the hit rather than the blue chips. Lonmin (down 11.63%), Vedanta Resources (down 7.40%), Evraz (down 7.37%) and Kaz Minerals (down 5.48%) were sharply lower. Additionally, Lonmin had to contend with an HSBC downgrade.

The bank downgraded Lonmin’s stock to ‘hold’ from ‘buy’ and slashed its price target to 82p from 222p, adding that its medium-term earnings and EBITDA estimates are substantially lowered by cuts in platinum group metals pricing and production expectations, and its fair value has declined by 45% from 222p to 122p.

“Given the current state of platinum pricing, the risks these present to Lonmin, and the need for clarity regarding the likely capital structure of the group in light of debt maturity in 2016, we have elected to place a subjective discount of 33% to our fair value calculation to help capture the inherent risks in our base case forecasts for the group,” HSBC added.

Going against the trend, FTSE 100 mining constituents BHP Billiton (up 0.89%), Fresnillo (up 1.37%) and Randgold (up 1.39%) weathered the turbulent session pretty well.

Oil and gas midcaps endured a troubling session as well with Tullow Oil (down 5.72%), joining Lonmin among the FTSE 250’s biggest fallers, with rival Premier Oil (5.52%) not all that far behind.

Insurers and financial also endured a torrid session, with RSA Insurance (down 3.12%) and Fidelity China Special Solutions Investment Trust (down 7.11%) setting the tone for both sectors. The latter has often acted as the harbinger of market mood on each of the occasions that the Chinese market has slipped lower.

3i Group (down 3.22%) and Sage Group (down 3.70%) also found themselves among the biggest blue chip losers.