Relief as European markets stabilise following Thursday’s global sell-off, and housebuilders under the spotlight over leasehold scandal

“Investors had a shock yesterday when a brutal sell-off in tech stocks caused a big wobble in global equities, with the tech-heavy US markets taking the worst hit. The FTSE 100’s 1.5% decline was nothing compared to the Nasdaq’s 5% slump because the UK market has very little tech exposure,” says Russ Mould, Investment Director at AJ Bell.

“Friday saw the FTSE 100 barely move at 5,846 with investors still demonstrating an appetite for risk as the two sectors showing gains on the day were oil and mining. The worst performing FTSE sectors were the defensives ones which you’d normally expect investors to snap up when markets go through a bad patch, namely utilities and healthcare.

“Other European markets were also static on Friday, while Asia saw just over 1% losses. These relatively minor movements would suggest that investors aren’t in panic mode and that Thursday’s sell-off might just have been people locking in some of the stellar gains made on tech stocks this year.

“However, there remains a fragile backdrop with mixed economic data, ongoing concerns about rising unemployment and no sign yet of a coronavirus vaccine, meaning that the slightest bit of bad news on any of these factors could be enough to cause further volatility in the markets.

“In terms of notable stock movements on the UK market on Friday, housebuilders were out of favour with investors following an investigation into various sector constituents over the way leaseholds were sold.

“Next week sees a flurry of reporting activity including construction equipment group Ashtead issuing first-quarter figures.”

Berkeley / Housebuilders

“Housebuilder Berkeley may have got back on the road after an extended break forced by lockdown, but it appears very mindful of the hazards posed by a potential second wave of coronavirus and an unruly Brexit.

“At least it has plenty of fuel in the tank – with a balance sheet which would be the envy of almost any other company listed in London.

“Net cash of £1 billion provides support for a long fallow period and enables the payment of dividends to reward shareholders’ patience, something not replicated by all of its peer group.

“There was a poignant air to today’s statement, the first since the passing of its founder and chairman Tony Pidgley in June.

“Pidgley was well known as a very astute reader of the property market and those skills would be useful at a time when the near term is all about record prices and high levels of activity, but the longer-term picture is far more uncertain.

“At least Berkeley is not included on the list of housebuilders facing possible enforcement action by the regulator over the issue of leasehold homes and alleged breaches of consumer protection law.

“Some purchasers of new homes have been hit by escalating ground rents on leasehold properties, leaving them with big bills and making it difficult for them to sell their properties on – with claims they weren’t properly informed during the buying process.

“The impact could be widespread with major developers Barratt Developments, Persimmon, Countryside Properties and Taylor Wimpey all potentially in the firing line.

“The last thing the sector needs heading into a recession is to face a mis-selling scandal akin to the PPI debacle which hit the banks in the wake of the financial crisis.”

These articles are for information purposes only and are not a personal recommendation or advice.