Market Report: Miners tumble as Investec joins the bears

Sentiment towards the mining sector took a serious hit yesterday as Investec Securities turned negative on the industry. Moving its stance on the sector to "underweight" from "neutral", the South African broker told its clients that although there may be a little further momentum for mining stocks, investors should begin to reduce their exposure. Such comments sent Xstrata tumbling 20.5p to 1,073.5p, Rio Tinto 27p lower to 1,808p, BHP Billiton down 17.5p to 759p and Antofagasta 15p weaker to 1,369p.

Sentiment towards the mining sector took a serious hit yesterday as Investec Securities turned negative on the industry. Moving its stance on the sector to "underweight" from "neutral", the South African broker told its clients that although there may be a little further momentum for mining stocks, investors should begin to reduce their exposure. Such comments sent Xstrata tumbling 20.5p to 1,073.5p, Rio Tinto 27p lower to 1,808p, BHP Billiton down 17.5p to 759p and Antofagasta 15p weaker to 1,369p.

"All news seems to be invariably positive for the mining sector at the moment. How much better can it get?" Investec asked. It concluded that things were unlikely to get better for the industry. "Although commodity and mining shares prices could move higher, at current price levels the risk must now be clearly on the downside", the broker warned.

Demand for commodities has been driven by robust demand from the fast-growing Chinese economy, and prices of the likes of iron ore and copper have also been aided by structural shortages resulting from the significant underinvestment in exploration projects during the Nineties and the start of this decade. But the soaraway prices of commodities have without doubt caused higher investment from producers, and Investec predicts that we will eventually move to a period of oversupply of certain commodities which can only cause prices to retreat.

Meanwhile, the wider blue-chip index rebounded strongly after Monday's poor start to the week. The FTSE 100 rose 32.0 points to close at 5,000.5. The heavyweight pharmaceuticals sector certainly did its bit to help the index close above the psychologically important 5,000 level. GlaxoSmithKline rose 32p to 1,275p, AstraZeneca gained 24p to 2,074p and Shire Pharmaceuticals improved 10p to 590p on the back of strong results from French rival Sanofi-Aventis. After Monday's dire news from Elan, which fell a further €0.2 to €6.1, those investors who follow the sector welcomed an 18 per cent rise in 2004 profits at Sanofi.

SSL International dropped 13p to 288p as Citigroup sold 10 million shares at 290p on behalf of a major institutional shareholder in the condom maker. Shares in the group have been in retreat since the start of last month as hopes of a bid for SSL have slowly faded. According to one well-informed corner of the Square Mile, SSL advisers had spent most of January on bid alert, but this has now definitely subsided.

Those punters who on Monday were busy betting on Hays posting a strong set of interims were spot on as the personnel group delivered an impressive jump in operating profits. However, they were disappointed as the stock was hit by a bout of profit-taking and closed 5.25p lower on the day at 129p.

Prudential rose 11.5p to 484.5p, ahead of today's results from the insurer. Punters are convinced that the group's figures are set to impress and are hoping that its shares respond positively.

Countrywide added 15p to a fresh high of 375p, causing significant financial pain for the many market operators who are short of the stock. Shares of the residential estate agency have for been attacked by bears for some time, and dealers now estimate that it is one of the most heavily shorted stocks in the FTSE 250. However, the bears have so far failed in their attempt on knock Countrywide shares, which have been driven sharply higher by heavy demand from a number of US hedge funds. These hedge funds are obviously convinced the UK house prices are set to experience yet more growth in the years ahead.

DX Services dropped 6.5p to 353.5p after Numis Securities urged its clients to exit shares in the logistics group ahead of its maiden interim results next Monday. "We have a negative stance on DX following a strong share price performance in recent months despite weak trading at the company", the broker said.

Ricardo lost 3.5p to 278p after Rodney Westhead, the engineer's chief executive, sold 100,000 shares at 279p, pretty much halving his stake in the company. Croma ticked 0.25p better to 7.12p on the back of solid results from the anti-terrorist equipment specialist. Word has it Croma recently secured a £500,000 order from the Ministry of Defence.

Palladex rose 1p to 15.5p as investors welcomed news that the explorer had started drilling at its gold deposit in Kyrgyzstan. The group's site is on a famous gold belt in the former Soviet country.

Finally, brokers tipped Sarantel, a manufacturer of antennae for wireless devices, to enjoy a strong debut on AIM today. The group is believed to have raised £18m in a heavily subscribed share placing at 82p.