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London stocks gave up a strong start to the week, dropping on Wednesday as investors kept close watch on an intensifying coronavirus outbreak in the country, and an infected Prime Minister Boris Johnson remained in intensive care for a second day.
The FTSE 100 index UKX, -0.83% fell 1.2% to 5,640.33, after gains that have left the index more than 4% higher for the week so far. The pound rose 0.2% against the dollar to $1.2359. The health of Johnson remains a concern for the country, which is battling to get to grips with the outbreak that has left nearly 56,000 infected and 6,171 dead, according to the Johns Hopkins Coronavirus Resource Center.
Johnson was admitted to ICU on Monday evening for persistent coronavirus symptoms. The London Times reported that he was responding well to treatment and his condition was stable, citing a Downing Street spokesman.
Losses for a handful of heavily-weighted stocks weighed on the index. Shares of energy majors BP BP, -0.99% BP, -3.16% and Royal Dutch Shell Group RDS.A, -0.18% RDSA, -2.06% fell 3% and 2%, respectively. Oil prices were modestly higher after a drop on Tuesday. Investors were hoping to see OPEC+ announce a production cut at a virtual meeting planned for Thursday. A price war between Saudi Arabia and Russia, along with sagging demand due to the coronavirus, have crushed prices.
Grocer Tesco TSCO, -4.77% was down 4%, with rivals J. Sainsbury SBRY, -5.55% and Wm Morrisons Supermarkets MRW, -2.24% down by 5% and 2%, respectively. Tesco said on Wednesday that pretax profit for fiscal 2020 fell on higher expenses and that it expects impairment charges from the coronavirus pandemic of up to 925 million pounds ($1.14 billion). The company is hiring extra workers to compensate for extra demand for groceries.
But it also bucked the trend of big businesses scrapping dividends by boosting its final dividend to 6.50 pence from 5.77 pence a year earlier.
Read: Companies hike pay to support frontline heroes of U.K.’s coronavirus pandemic
London-listed insurers were also weak. Shares of Aviva AV, -7.19% slid over 6% and Direct Line Insurance Group DLG, -8.03% fell 7% after the companies said their boards will withdraw final dividends due to the coronavirus after instructions from regulators. RSA Insurance Group RSA, -1.90% said it would do the same, but shares fell just 1.3%.
It follows a similar move for banks in the country. “While the banks would have a weak case for continuing dividend payments given their history and the state support they required during the financial crisis. Insurers did not require propping at the time and most can point to robust balance sheets now,” said AJ Bell investment director Russ Mould, in a note to clients. .
“In theory the insurance sector shouldn’t be subject to the same erosion of revenue seen in other sectors. Premiums should continue to flow as people will still have to insure their cars, homes, businesses and lives through the coronavirus crisis,” said Mould.
“However, the level of claims that will come through is hard to quantify at this point. It would not be a good look for the industry to be taking a very hard line with its customers while continuing to pay out millions to its shareholders,” he said.
