LONDON: Britain's top share index retreated from six month highs on Monday, with miners leading the early fallers as some sectors' valuations prompted investors to bank recent gains.
By 0736 GMT the FTSE 100 was down 10.83 points, or 0.2 percent at 5,904.72, having closed up 1.6 percent on Friday thanks to fresh economic stimulus from the US Federal Reserve. The move has driven implied volatility on the index, seen as a crude barometer of investor caution, to one-month lows.
Miners shed 0.8 percent after the sector's forward 12-month price-to-earnings ratio hit post-credit crisis highs of 11.5 times against a backdrop of slowing China growth and falling earnings expectations.
"The three-month rally has now taken forward PE multiples towards post-credit crisis highs and, with earnings forecasts still trending lower and the central bank stimulus story seemingly over for now, further progress in the near-term may become more difficult," Ian Williams, equity analyst at Peel Hunt, said.
The FTSE 100 is trading on a forward 12-month PE of 11.5 times too but JP Morgan questioned how much further PEs can rerate if Chinese or US growth doesn't accelerate and how much expansion could be eaten away by earnings forecasts coming down.
With that in mind JP Morgan in commodities is "overweight" energy, but said it would fade the mining rally. It was also "overweight" euro zone stocks compared to the US and prefers financials to cyclicals and highlighted Fresnillo and GKN among the UK-listed stocks which outperformed the most after both QE1 and QE2.
Energy firm Royal Dutch Shell, however, underperformed the FTSE 100 on Monday, falling 0.5 percent after saying it had decided to delay its hunt for oil in Alaska until next year after a piece of equipment used in a test was damaged, highlighting the difficulties of drilling in the icy Arctic sea.
The early risers on the FTSE 100 were mainly stocks which lagged the recent gains - firms which tend to perform better against the austere economic backdrop.
Household goods firm Reckitt Benckiser added 0.9 percent, utility company Pennon rose 0.7 percent and Compass Group, the world's biggest caterer, was 0.8 percent higher.
European food group Unilever was the index's top gainer, rising 1.4 percent after UBS upgraded the company to "buy" from "neutral".
"Going forward we expect the portfolio to become more sharply focused, which combined with an increasing exposure to the emerging markets will accelerate foods organic sales growth ... and make it more reliable. We also expect an uptick in profitability," UBS said in a note.
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