FTSE 100 pauses for breath, activist reduces holding in Scottish Mortgage, Diploma lifts guidance and Gulf Keystone Petroleum launches buyback

“The FTSE 100 was probably due a pause after a breathless period which has seen it mark record after record and Monday morning saw the index take a seat,” says AJ Bell Investment Director Russ Mould.

“Asian stocks, bar Japan, made some progress as the Chinese authorities continue to unveil stimulus measures. Japanese shares, having recently set their own long-awaited all-time high, are currently bedevilled by speculation a weak yen will force the Bank of Japan to put up interest rates.

“US inflation numbers on Wednesday may provide clues on the trajectory of rates across the Atlantic. Investors have been remarkably sanguine about the pushing back of rate expectations.

“However, a much higher than anticipated headline reading of CPI could push those expectations back even further and push the market’s patience beyond its limit.

“One of the FTSE 100’s lesser lights – specialist distribution business Diploma – was taking its moment in the spotlight as it lifted annual guidance.

“Supplying widgets, cables and other technical items to keep factories and laboratories operating may not set the pulses running but it has underpinned extremely strong returns over the long term for the company.

“A big chunk of its recent growth has come from acquisitions – which can ring alarm bells – but crucially this has been a key part of Diploma’s successful strategy over a long period.

“Another UK company has announced a share buyback as a remedy for a weak share price. However, the company in question, small cap Iraqi-based oil and gas firm Gulf Keystone, is hardly the most likely candidate for such a move.”

Scottish Mortgage

“Is this the shortest activist investor campaign in history? Less than two months after declaring a 5% stake in Scottish Mortgage Investment Trust, Elliott has started to sell down its holding.

“Whereas some previous activist campaigns against investment trusts have had a long list of demands, such as the ones around Alliance Trust, it’s fair to say that Scottish Mortgage was a much simpler one to comprehend. Do something to narrow the discount to net asset value and sell some of its private holdings as it might get a better price than was attributed by the market.

“A significant share buyback programme recently unveiled by Scottish Mortgage has done wonders to narrow the discount, taking it from circa 15% to approximately 5%. There has also been a wider improvement in investor risk appetite and many trusts with unquoted assets have bounced back.

“Elliott has been laughing all the way to the bank as it has barely taken its feet off the desk, let alone had to flex its muscles in the normal way an activist does to get their message across.”

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