Robert Tyerman takes the temperature of an uncertain stock market.

Political scandal and a government in crisis may have caused an immediate – possibly short-term – fall in the sterling exchange rate, but they have so far done little to dampen stock market sentiment.

Bulls have been seizing on any sign of economic and commercial recovery in prospect to shift stock market indices higher, undeterred by a near-25 per cent fall in new UK car sales in May or gloomy news from across the Pond, as General Motors slid into long-predicted bankruptcy and US unemployment hit a 26-year high.

Instead, The FTSE 100 Share Index had been edging higher, recently topping 4,450 points, nearly 30 per cent up from its 52-week low though still 26 per cent below its high, before falling back to around 4,320.

The Bank of England is persevering with quantitative monetary easing through its £125 billion programme of gilts and corporate bond purchases, despite indications that much of the money is finding its way abroad and fears that purchases will have to turn into sales as the public deficit balloons.

Commodity speculation
The extreme volatility displayed by some commodity prices, especially oil, has been exciting the interest of those investors of a more speculative frame of mind. With Brent crude hitting its highest point so far in 2009 at US$71.50 per barrel in early June, the providers of spread betting services reported high levels of activity from their clientele speculating on the oil price.

Paddy Power, the Irish bookmaker that has recently ventured into this area, reports that a significant number of its punters are on the long side of the oil price, although Davin McAnaney at paddypowertrader.com admits that ‘it is difficult to anticipate where this market is going in the long term’. He reckons that the combination of the dramatic drop in the oil price from its high of $147 last July, combined with suggestions that the recovery may have already started, are the reasons behind this level of speculative activity.

Signs of cheer
Figures from HBOS showing an unexpected rebound of two per cent in house prices during May and a forecast from Barclays that UK national income will resume growth in the second half of this year have combined to lend more cheer, as the Bank of England’s monetary policy committee keeps base rate unchanged at 0.5 per cent. One long-standing and proverbially sceptical company chairman tells What Investment that he expects a sharp correction soon, but even he sees that giving way to a gentle, sustained uptrend.

That may be too cautious, given the feeling that the banking system’s return to normality is picking up and evidence that institutions are willing to take major corporate financings on the chin. Mining giant Rio Tinto, its plans for a £12.4 billion aluminium alliance with China’s Chinalco finally thwarted, bounced up handsomely on unveiling plans for a £7.4 billion emergency rights issue and an iron ore tie-up with BHP Billiton, the world’s largest mining company.

Platinum miner Lonmin similarly pleased investors with a heavily discounted £279 million rights issue to help reduce its debt. Platinum distributor Johnson Matthey, by contrast, has been suffering from the problems in the US car market, a prime market for the fume-filtering catalytic converters it makes.

Building up in confidence
Real estate investment trust Hammerson has given a shot of confidence to the property sector by at last selling 75 per cent of its landmark Bishops Square office development in London. The government of Oman’s investment arm was the buyer in a deal that will allow Hammerson to slash its debt pile by £386 million and raises hopes that Middle East funds now have a renewed appetite for British property.

One Middle East investor, Sheikh Mansour bin Zayed al-Nahyan, has lately done well from the London stock market after investing £2 billion in Barclays Bank convertibles at 153p more than six months ago and then selling his stake at more than 315p, for a profit of some £1.5 billion. Barclays shares initially lost ten per cent on news of the sale, but have since rallied.

Arab interest has also been focusing on National Grid, where Olayan Group, one of Saudi Arabia’s biggest investment groups, took a derivative position equivalent to a 4.39 per cent share stake.

Sector View: Platinum
There are fears that the car industry’s woes could dent demand for platinum, used heavily in manufacturing catalytic converters, but several players have successfully tapped the market for funds and investors seem to be regaining their appetite. A private share placing at 51p netted Platinum Australia £30.6 million to retire debt and boost production at Smokey Hills in South Africa and fund deals and projects.

Another company, entrepreneurial Platmin, has raised £39 million at 52p for similar reasons, after claiming attributable resources of 20 million oz of platinum group metals. London-based Jubilee Platinum says estimated resources at Tjaate in South Africa have reached 70 million oz of platinum group metals and gold. Jubilee owns 63 per cent of Tjaate, which it suggests could be worth nearly £19 billion, before all costs and expenses.

Shares in Platinum Australia slumped from 148.5p to 17.5p between June and October last year, but have now rallied to 58p, Platmin shares hit 517p at their peak before collapsing to 23.5p last February, as PGM prices fell, and have now bounced to 60.5p, while Jubilee shares, still down a long way from previous heights, have risen from a 7.13p low to 50.75p, and could rally further. All could repay a bold medium-term punt. Jubilee might fare best.

Robert Tyerman is news editor of Growth Company Investor, the UK’s leading magazine for AIM and small-cap analysis