New year nightmare for traders as FTSE suffers worst week since August

Britain’s benchmark index suffered its worst week since August after a rollercoaster start to the new year wiped almost £85bn off its value.

But market jitters soon resurfaced and the blue chip index soon fell back into the red - finishing the week down 329.88 points, or 5.28pc, to 5,912.44. The mining-heavy index plunged by 5.54pc in August when Chinese-led malaise triggered a sell-off.

Chris Beauchamp, of IG, said: “Equity traders have been left bereft of reasons to be optimistic this week, and it looks like the China fears of the past few days will remain with us as we head into a new week.”

• Is China really devaluing its currency?

Elsewhere, Tesco found support for a second time this week thanks to its recent share price underperformance. Barclays became the latest investment bank to back the food retailer, upgrading the FTSE 100 stock from “equal weight” to “overweight”, as it looks “attractive” at current levels. The grocer endured a tumultuous three months, when disappointing interim results in October triggered a 26pc slide in its share price.

James Anstead, a Barclays analyst, said: “Although we remain fully conscious of the difficult state of the UK food retail market - and the as yet unproven nature of Tesco’s recovery - we believe that after recent sustained weakness, the Tesco share price now offers considerably more upside than downside.”

Tesco enjoyed its second rating upgrade in a week.  Photo: PA

However, with Tesco now trading in line with Sainsbury’s, the investment bank believes its trading statement, due out next week, may be “less worrisome than the market’s worst fears”. A fierce supermarket price war has rocked the industry and whether Tesco can succeed in blunting the appeal of discount retailers, such as Aldi and Lidl, remains unknown. Nonetheless, Barclays believes there a number of catalysts that will be received “positively by the market”.

In April, when Tesco posts its full-year results, analysts think it could bring “more colour” on cost savings targets, which would add more visibility to its future profit growth. The FTSE 100 company could also benefit from continued growth in its international sales division and lower fuel prices.

On Tuesday, Tesco’s former corporate broker Deutsche Bank hiked the grocer’s rating, for the same reason. Shares rose 7.7p, or 5.5pc, to 146.9p.

Meanwhile, a rating upgrade helped Standard Life climb 4.5p to 363p. HSBC raised its rating to “buy” as it thinks the European insurance sector offers attractive valuations as well as positive earnings growth.

Another stock to benefit from a rating upgrade was GKN. The engineering group inched 3.6p higher to 278.4p after Bank of America Merrill Lynch lifted its rating to “buy” due to its “high earnings visibility” in 2016.

Finally, on Aim, Gama Aviation fell 2.5p to 270p despite agreeing the acquisition of Jersey-based Aviation Beauport.