Weak drink stocks take the fizz out of UK's FTSE

Tue Nov 26, 2013 10:50am EST

* FTSE down 0.5 pct in late session trading

* Remy profit warning hurts SAB Miller and Diageo

* Most traders still expect year-end rally

By Sudip Kar-Gupta

LONDON, Nov 26 (Reuters) - Britain's benchmark equity index fell on Tuesday, pulled down by major drink stocks such as SAB Miller and Diageo on signs of slowing consumer demand in China.

Many traders said nevertheless that any market weakness in November would be followed by a rally in December that could push the index back to its 2013 peaks.

The blue-chip FTSE 100 index was down 0.5 percent, or 36.33 points, at 6,658.29 points in late session trading.

SAB Miller and Diageo together took the most points off the index after a profit warning at rival Remy Cointreau, which slumped 9.6 percent after warning of a slowdown in China.

Tim Gregory, head of global equities at Psigma Investment Management, said that even though the drinks sector faced near-term challenges, its longer-term outlook remained more robust.

Many analysts expect drinks groups to gradually cash in on rising consumer demand in areas such as China and India.

"Although there are clearly short term headwinds for the high-end spirits market, the long term opportunity for the industry is still strong, so we would see any short term weakness in stocks like Diageo as an opportunity to buy the shares," said Gregory.

The FTSE remains up by around 13 percent since the start of 2013. It reached a five-month peak of around 6,800 points in late October, having hit a 13-year peak of 6,875.62 points in late May, helped by a gradual recovery in the British economy.

"We're still expecting a year-end rally, but we won't buy unless it either falls to 6,600 points or if it holds above 6,700," said Logic Investments director of trading Darren Easton.

APS Alpha technical strategist Adrian Slack also expected the FTSE to get back to the 6,800 level in December.

Slack added that if it rose above that, it could then challenge the 7,000 point level by the end of 2013, which would represent an all-time high for the index.

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