James Moore: It might not look that way but housebuilders could yet be stock market stars

Outlook: Ursine investors might be missing a trick. The shares of nearly every housebuilder trade at sharp discounts to their net asset values at the moment
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The Independent Online

More gloomy looking comments on the housing market, this time from Bovis Homes.

The company will have surprised no one with its view that a weakish housing market became even more fragile after the general election and the Coalition's subsequent austerity Budget.

And it was these comments that the market was picking up on when it marked the shares down despite the company's return to profit, resumption of dividend payments and the way it has been able to run around adding to its land bank at some very attractive prices. Sentiment is all, in the current market, and sentiment towards housebuilders is rotten.

Small wonder, really, when you have yahoos like Policy Exchange running round with dire warnings of 8 per cent interest rates in an attempt to pick up some cheap headlines. We're all doomed! And what do you know: it's August, so the think-tank's tactic worked. The story was carried just about everywhere, regardless of whether the sensation-seeking report stands up to serious scrutiny.

The behaviour of the market does suggest that Bovis's chief executive, David Ritchie, is correct to be cautious. The housing market continues to be torpid and the level of mortgage approvals is still bumping along at – or close to – historically low levels.

Even if the likes of Policy Exchange were predicting milk and honey around the corner, this won't change anytime soon. The banks don't really want to lend (regardless of what they say) and consumers don't really want to borrow: people are (rightly) nervous about their future employment prospects, particularly those in the public sector looking nervously at the Coalition's Sword of Damocles, which hangs above them. So perhaps it is no wonder that the bears are again slashing at a sector which hasn't yet fully recovered from the savaging it received during the worst downturn it has suffered in a generation.

But ursine investors might be missing a trick. The shares of nearly every housebuilder trade at sharp discounts to their net asset values at the moment, suggesting that the market thinks the housing market is very likely to get worse before it gets better.

This may well be true. But it is worth noting that Britain continues to suffer from a housing shortage, particularly in the prosperous South East. It is a shortage that is going to become more pronounced the longer the market remains in its current condition.

The problem has been exacerbated by the fact that housebuilding all but stopped during the credit crunch. Another driver will be the longer-term impact of the coalition's cuts: they will disproportionately hit the north where the public sector makes up a far greater proportion of the economy.

As public sector redundancy programmes get into full swing, it is highly likely that progressively more people will be forced South in search of work. Where are they going to live when no new homes are being built?

It might not look that way at the moment, but the housing market is not going to remain in its current state of lassitude for ever. And housebuilders, nearly all of which have been adding to their land banks in recent months, will be poised to reap the benefits. At current levels, their shares could prove to be extraordinarily cheap.



HSBC's African advance isn't a done deal

So the HSBC juggernaut rolls on, with the bank poised to become the second major (nominally) British bank to invest heavily in South Africa, in this case, through the purchase of a majority stake in Nedbank, which is currently controlled by the insurer Old Mutual.

The logic of the deal for the global megabank appears compelling. Just under 30 per cent of resource rich South Africa's exports head in the direction of Asia, about the same as currently come to Europe.

However, Asia's share will increase rapidly if the resource hungry economies of the region continue (as expected) to outstrip their European rivals in terms of growth.

HSBC, which was created to take advantage of trade links between Europe and Asia, and is an emerging markets specialist, would dearly love to take advantage of what are set to be rapidly increasing trade flows between Africa and Asia.

And the "World's Local Bank" would appear to be in a far better position to do so than its chief Western rival in region, Barclays, which owns a majority stake in one of Nedbank's main rivals, Absa, but has nothing like HSBC's Asian business.

And it's not just South Africa. Nedbank's footprint extends across sub-Saharan Africa. The economies in the region don't amount to much at the moment. But 15 of the 20 top performers in 2009 were in the region. Of course, optimistic predictions have been made in the past, only to be dashed by a combination of conflict and the continent's lamentable leaders. But they might be on to something this time. And even if the current muted optimism about prospects prove to be another mirage, South Africa's economy needn't be dragged down with its neighbours. It is large, relatively well developed and has been growing tidily.

The problem for HSBC is politics. The two sides have only said they are in exclusive talks, but a deal at a shade above £4bn looks to be a racing certainty. The key party in this deal is not so much Old Mutual as the regulatory authorities. There is a theory that HSBC wouldn't have gone this far down the road without some comfort from the South African government. But that doesn't necessarily hold true.

There is considerable concern in South Africa at the prospect of another foreign company taking out a substantial chunk of its banking industry. Old Mutual may have its primary listing in London, but it is still seen as an essentially South Africa company. Barclays might have attracted considerable flak for its involvement in South Africa during the apartheid era, but when it returned it was, at least for the authorities, the devil you know. The same cannot be said of HSBC.

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