LONDON (Reuters) – Shares in UK housebuilders bounced off two-year lows on Wednesday as investors and traders covered bearish bets ahead of next weeks vote on Prime Minister Mays Brexit deal.
FILE PHOTO: A warning sign is displayed at a Persimmon construction site in Dartford, Britain August 21, 2015. REUTERS/Neil Hall/File Photo
The bounce didnt signal a sudden change of mind from the market over the challenges facing housebuilders in an economy hurt by the decision to exit the European Union, but rather an acknowledgement that they may not have much further to fall, traders said.
FTSE 100 housebuilders Berkeley Group (BKGH.L), Barratt Development (BDEV.L), Persimmon (PSN.L), and Taylor Wimpey (TW.L) jumped 3.9 to 6.5 percent, topping the FTSE 100 .FTSE leader board.
Among mid-caps, housebuilders Bovis Homes (BVS.L), Crest Nicholson (CRST.L), Bellway (BWY.L), and Redrow (RDW.L) jumped 3.7 to 7 percent.
Earlier in the session, the housebuilding sector .FTNMX3720 was at its lowest level since December 2016, down 16.2 percent this year against a 10 percent fall in the FTSE 350. In afternoon trade, it was up 0.2 percent.
With next Tuesdays vote on Prime Minister Mays Brexit deal looming, short sellers in the shares may be unwinding their positions ahead of the vote, banking their gains as they bet the prices may not have much further to fall.
Housebuilders shares are currently pricing in earnings-per-share cuts of 26 to 35 percent, Barclays analysts wrote in a note on Wednesday, which they said reflects a fall of up to 8 percent in house prices and a 30 percent reduction in transactions in the housing market.
In the Bank of Englands “disorderly” Brexit scenario, the central bank said house prices could fall by 30 percent.
What some see as a higher probability of Tuesdays vote ultimately yielding a “no Brexit” outcome also helped boost the shares which have been under pressure since the Brexit vote.
JP Morgan analysts upped their estimated probability of “no Brexit” to 40 percent from 20 percent on Wednesday.
Speculation the Bank of England would step in to support housebuilders could also be helping them.
“People might well think that the government will pump money into the economy, in which case construction and housebuilding are fairly obvious areas to go,” said Paul Mumford, fund manager at Cavendish Asset Management.
With valuations nearly at their lows hit just after the Brexit vote, and dividend yields among the highest in the FTSE 350, housebuilders also look attractive to income investors willing to stomach the risk.
For a graphic on UK housebuilders price to book value, see – tmsnrt.rs/2RBKv11
Reporting by Helen Reid; Editing by Josephine Mason, Keith Weir
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