Market Report: Storm clouds hover over recruitment sector

Nathan Rothschild, when asked how he made fortune, famously replied: "By selling too soon." In the same way, Credit Suisse First Boston advised investors yesterday to exit the recruitment sector while the going is still good. The Swiss broker accepts that trading is strong in the recruitment arena at present but warned that clouds are gathering over the industry.

Nathan Rothschild, when asked how he made fortune, famously replied: "By selling too soon." In the same way, Credit Suisse First Boston advised investors yesterday to exit the recruitment sector while the going is still good. The Swiss broker accepts that trading is strong in the recruitment arena at present but warned that clouds are gathering over the industry.

CSFB admits it is difficult for investors to abandon companies where things are going well. And, currently, that is certainly the case at the recruiters Hays and Michael Page. It is not so long ago that analysts throughout the Square Mile were busy raising their earnings forecasts for the duo. But the broker believes investors should look beyond this. It notes that the UK economy is now starting to slow and that demand for recruitment services from the usually reliable public sector is also in retreat as the Government fights to balance its books.

CSFB argues it is only a matter of time before these negative factors start to affect recruiters and so it turned negative on the sector's biggest players. Hays was down 1p to 124.5p and Michael Page off 7.5p to 184.5p. Although both companies have a presence abroad, the UK remains the place were they do the bulk of their business. Michael Page generates 60 per cent of its earnings in Britain, while for Hays the figure is more than 80 per cent.

Smaller players in the recruitment arena were also in retreat yesterday. Spring fell 3.5p to 93.5p, Robert Walters lost 1.5p to 105p and Harvey Nash ticked 0.5p lower to 54.5p.

The FTSE 100 finished 14.3 points higher at 4,898.5 but dealers suggested that blue chips may well have achieved even better gains had it not been for a bearish survey of fund managers' opinion conducted by Merrill Lynch. The survey found that institutional investors are becoming increasingly gloomy about the prospects for the world economy and corporate profits. "We have got a major shift in how fund managers perceive the world," David Bowers, Merrill Lynch's chief global strategist, said. "We are now starting to see people position themselves for global growth disappointment."

Retailers were once again a talking point. Ottakars, steady at 262p, is believed to have seen the famous bear raider Simon Cawkwell, aka Evil Knievel, take a short position in its stock, believing the company can only come under greater and greater pressure from online alternatives such as Amazon.

Meanwhile, Bridgewell Securities warned that Game Group, unchanged at 78.75p, is likely to see its profits suffer over the next six to 12 months because of intensifying competition in the computer games retailer arena and deteriorating consumer spending. Clinton Cards gave up 1.5p to 85p on talk of a slowing trade at the greetings cards retailer.

There was volatile trading in Next before today's update to the City. Although the clothes retailer finished 7p better on the day at 1,505p, at one point during the session selling pressure pushed it to 1,488p. It is well known that hedge funds are betting large amounts of money that the update will disappoint investors. It is estimated that the short position in the stock could be as high as 9 per cent of its share capital. As it stands, retail analysts expect Next to deliver sales growth of 9.4 per cent for the first 15 weeks of the year.

The fund management sector was set alight by strong results from Schroders, up 38.5p to 727p, and rumours that further consolidation is on the way in the industry. Amvescap added 2p to 309p, Aberdeen Asset Management put on 2p to 116p and Henderson ticked 0.25p better to 60p.

William Hill dropped 19p to 491.5p after ABN Amro cut its rating on the bookmaker to "add" from "buy" in response to its purchase of Stanley Leisure's betting shop division. ABN worries that the £504m William Hill paid for the business is too high a price.

TTP Communications added 0.75p to 39.25p after Tony Milbourn, the managing director at the telecoms equipment group, disclosed the purchase of 50,000 shares at 38.45p. De Vere ticked 1.5p higher to 531p as Deutsche Bank ushered its clients into the hotels group. The German broker set a 600p price target on the shares and said it is convinced that De Vere's business will be a strong performer over the next 12 months.

Lower down the pecking order, Air Music & Media was steady at 7.5p despite whispers that next month's results from the group are likely to impress. Autologic dropped 5p to 215p as brokers suggested that weakening car sales are likely to have adversely affected earnings at the vehicle technology company.