Market Report: HSBC backs builders with a call to buy

  • @LauraHChesters

Shares in housebuilders are as safe as houses - well that's what HSBC's analysts claim. Yesterday they called on punters to "prepare for another big rally: Share prices are assuming… a moribund housing market for three more years. We are more upbeat and now forecast a steady recovery."

They rate all housebuilders as overweight – i.e. buy – and highlighted Bovis, up 17p to 550p, and Taylor Wimpey, up 2.35p to 59.25p, as their top picks with price targets of 753p and 82p respectively. They upgraded Persimmon to overweight and gave it a 957p price target. It built up a 24.5p gain to 796.5p.

Mortgage lending has grown in the last 18 months according to the scribes and they expect "all builders to achieve small house-price gains this spring on stronger housing demand and tight supply."

Invensys' £1.74bn deal to sell its railway business to German giant Siemens is on track but that didn't stop rumours steaming ahead that rival bidders, in the shape of Canada's Bombardier, Chinese or Japanese rail companies or old flame Emerson Electric, could be planning a counterbid for the entire company. But Invensys' pension deficit is still a poison pill and other traders thought a counterbid is unlikely to match Siemens' generous offer. The rail deal kept Invensys at the top of the mid-cap index for a second day, up 25p to 305p.

South West Water owner Pennon Group, up 26p to 624.5p, was flowing up the benchmark index after it announced first-half profits in line with expectations and said it would raise its dividend by 6.6 per cent.

Is it time to buy shares in engineer John Wood Group? A family sell-off has prompted analysts at Oriel Securities to suggest it is a good time to buy the Aberdeen-based engineer, as it fell to the bottom of the blue-chip index.

Some of the family and its trust are selling a 4.4 per cent stake in the company. But Sir Ian Wood is not parting with his stake and Oriel's analysts retain their add recommendation for the stock. The shares declined 35p to 780p.

Wood was one of only a handful of fallers on the FTSE 100 index as investor fears about the United States fiscal cliff were eased. Good news came in from the US where third-quarter GDP data was revised upward to 2.7 per cent, from 2 per cent, and October's pending home sales were up 5.2 per cent. The blue-chip index lifted 67.02 points to 5,870.3.

Miners were in favour as investors felt ready to speculate. The announcement that Rio Tinto is slashing costs helped it up 149.5p to 3,090p.

News from Canada caused some traders to raise a wry smile. Inmet Mining announced that talks with London-listed First Quantum Minerals were not going ahead.

Previous speculation of any takeover talks had been denied. First Quantum shares mined down 27p to 1,299p.

Traders with an eye on the US speculated that a long-rumoured deal to buy American pharmaceutical group Illumina could be set to happen. But it was rumoured that potentially interested party GlaxoSmithKline, up 14p to 1,351p, could be beaten by Swiss-based Roche.

Back on the mid-cap index, Man Group was said to be back in play – old and vague speculation re-emerged that a takeover could happen by Christmas. Its shares gained 2.65p to 76.55p.

Online food retailer Ocado travelled up 1.5p to 72.5p as it emerged hedge fund Lansdowne – which has short positions in Tesco and Morrisons – now has a 5.7 per cent stake and £28m long position.

Diageo's Paul Walsh last week sold 20,000 shares in the drinks giant at 1,850p a pop. This week he was back at his broker, spending around £21,700 on 10,000 shares in Aim-listed broadband satellite operator Avanti Communications where he is a non-executive director. Mr Walsh now owns around 0.1 per cent in the group and Avanti's shares lifted 2.75p to 218p.