Investors Worries Rise over Falling Housebuilder Stocks

Housebuilder stocks top the most looked up stocks among Morningstar.co.uk readers as they struggles in the wake of a Brexit vote

Karen Kwok 8 July, 2016 | 4:03PM
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Housebuilder stocks fell dramatically in the wake of the Brexit result, and, according to the latest Halifax house price index, so did the growth of residential property prices.

The Halifax data revealed that house prices in the three months to June were 1.2% higher than in the previous quarter, down from 1.5% in May. The annual rate of house prices growth dropped from 9.2% in May to 8.4%, the lowest since July 2015.

“House prices continue to increase, albeit at a slower rate, but this precedes the EU referendum result, therefore it is far too early to determine any impact since,” Martin Ellis, Halifax housing economist said.

Jonathan Hopper, managing director of the buying agents, Garrington property Finders believes that the Brexit vote is shifting the housing market’s psychology fundamentally in the UK.

“This Halifax data now serves as little more than a historical record of the rising market’s last hurrah,” Hopper said.

“While it’s too early to know how much prices have fallen, sellers are already behaving as if a fall is coming. Many of those who have to sell are starting to offer discounts, often big ones. In the space of a fortnight the property market has reversed its polarity from a seller's to a buyer’s market,” he explained.

Housebuilder Stocks Tumble

The housebuilder sector suffered the most among FTSE 100 stocks on the day of the Brexit outcome, June 24. This is because housebuilder companies have a domestic focus and are sensitive to the fall in the UK currency.

“If one takes the view that the UK will not enter a recession in 2017 and the demand for housing is strong then this would make for an interesting opportunity,” Edward Smith, asset allocation strategist at Rathbones commented after the dramatic fall of housebuilders share price.

Across the housebuilder sector and the FTSE 100, Taylor Wimpey (TW.) was the biggest faller on the day with a loss of 29.3%. This housebuilder stock continues to be hammered amid Brexit uncertainty and market volatility, losing 38.7% year to date. Therefore it is no surprise that for the first time, this stock comes to one of the top five ‘hit list’ of the most popular stocks in June among Morningstar.co.uk readers. The stock rises 7.8% to 131.60p in day trading at 2pm in London time on Friday. 

Declines in Share Prices of Financial Stocks

Financial stocks have also suffered post Brexit, and Morningstar.co.uk readers have concerns about the sector’s future.

Lloyds Banking Group (LLOY), Barclays (BARC), HSBC Holdings (HSBA), Aviva (AV.) and Legal & General Group (LGEN) all featured in the most popular hits list among Morningstar.co.uk readers in June.

On 27 June, trading was suspended in Lloyds, Barclays and Royal Bank of Scotland shares following dramatic 10% plus drops in their share prices.

“Interest rates cuts and negative rates are extremely dangerous and very negative for banks overall balance sheet profitability and their ability to continue to lend. That will have an impact on their behaviour,” said Michael Browne, co-manager of the Legg Mason Martin Currie European Absolute Alpha fund.

Amid Brexit uncertainty, Morningstar analyst Stephen Ellis unveils his plan to lower the fair value estimates for several UK banks, however he sees an undervalued opportunity with HSBC, primarily due to its relative lack of UK exposure and its pivot toward Asia. However Ellis warned that HSBC might announce a dividend cut as its earnings could be volatile facing China slowdown. HSBC is currently rated by Morningstar analysts with a four-star rating, meaning that it is trading below its current value.  The stock is down 10.8% year to date.

Other companies topping on the most popular list among Morningstar.co.uk investors are Royal Dutch Shell (RDSB), BP (BP.), GlaxoSmithKline (GSK) and Vodafone (VOD).

Tesco Drops out of the Hits List

Tesco (TSCO) dropped out of the most popular list in June, for the first time this year. While the grocery industry remains very competitive over the past few years, Chris Beauchamp, senior market strategist at IG Group expects further deterioration in Tesco’s market shares.

Morningstar analyst Ken Perkins agrees, saying that its turnaround could take several years.

“Price cuts remain a headwind, though, as Tesco attempts to improve the competitiveness of its products relative to those of discounters. While these price cuts could continue to weigh on profits, we see signs that Tesco's shift to more everyday low prices is having a positive effect,” Perkins said.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Aviva PLC428.50 GBX1.04Rating
Barclays PLC196.70 GBX3.33Rating
BP PLC379.65 GBX4.27Rating
GlaxoSmithKline PLC1,614.40 GBX-0.01Rating
HSBC Holdings PLC509.40 GBX3.51Rating
Legal & General Group PLC284.10 GBX0.96
Lloyds Banking Group PLC50.91 GBX3.33Rating
Royal Dutch Shell PLC B1,812.00 GBX3.67Rating
Taylor Wimpey PLC144.90 GBX-1.46
Vodafone Group PLC125.52 GBX2.17Rating

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk