Market Report: Property wobbles again as FTSE 100 drifts lower

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The Independent Online

Real estate issues came under pressure last night, with Great Portland Estates and Land Securities retreating amid worries that the sector, which has underperformed the wider market in recent months, has not fallen far enough.

Shares in real-estate investment trusts, or Reits, have lagged behind the FTSE All Share index over the past 12 months. Ordinarily, such a run of weakness might be seen as an opportunity to pile in. But HSBC, weighing in on the matter yesterday, said the market was still overestimating "the potential for growth in central London office rents" over this year and the next. "We forecast strong rental growth will be restricted to the prime City and prime West End markets, supported by historically low future supply, while sub-trend demand will weigh on average London office rents," the broker explained, forecasting further falls in net asset values for Land Securities, down 14p at 659.6p, Hammerson, down 5.7p at 378.6p, Derwent London, down 20p at 1,408p, and Great Portland Estates, which fell 7.5p to 322.1p.

Great Portland was also hit by some negative comment from the analysts at Panmure Gordon, who initiated coverage of the stock with a "sell" recommendation, citing valuation grounds. Those searching for a silver lining in the day's news latched on to the latest missive from Morgan Stanley, whose strategists turned bullish on property plays, arguing that the recent run of weakness was indeed a buying opportunity as positive changes, such as a post-election bounce in the pound, could provoke a meaningful rally.

overall, there was no let-up in the profit-taking sparked by the Securities and Exchange Commission's decision to slap fraud charges on the US investment banking giant Goldman Sachs, with the FTSE 100, which struck new highs in the middle of last week, easing to 5,727.91, down 16.05 points. The junior FTSE 250 index was also unsettled, losing 56.97 points to 10,390.86 as traders attempted to gauge the potential implications of the case. A key concern was the potential for a wider regulatory inquiry into the marketing of complex financial instruments. This caused weakness in the banking sector, with Barclays falling to 370.45p, down 2.9p, and HSBC declining to 691p, down 7p.

Seymour Pierce's banking analyst Bruce Packard, citing the news from the SEC and the various regulatory moves being contemplated by US and European authorities, advised caution, telling clients not to buy into a sector "where the regulators are about to move the goal posts". "The pitch surface is so uneven that [even] if the goal posts aren't moved ... we might see a few more broken legs in the future," he added. The concerns failed to stop the Royal Bank of Scotland, which has been reported to have had a large exposure to the subprime mortgage bonds that the SEC is looking into. At the close, the stock was 2.1p stronger at 50.4p, putting the taxpayer's stake, which was purchased at an average price of 49.9p, in the black.

Elsewhere, the volcanic ash disrupting flights across Europe clouded sentiment around travel-related shares, with TUI Travel, which said the airspace closure had cost its business about £20m until the weekend, losing 3.5p to 288.2p. British Airways was also weak, declining by 3.3p to 231.7p, after saying that it was taking a hit of about £15m to £20m per day in terms of lost passenger and freight revenue and the cost of supporting passengers. BA added that European Airlines had asked the EU and national governments for financial compensation for the flight ban.

Also on the downside, commodity markets softened as traders, rattled by the Goldman Sachs charges, lost their appetite for risk. That in turn weighed on mining issues, with the likes of Kazakhmys and Antofagasta losing 24p to 1,474p and 17p to 983p respectively. Oil prices were also weak last night, holding back the likes of Cairn Energy and Tullow Oil, who lost 4.5p to 406.6p and 13p to 1,282p respectively. The majors fared better, with BG firming up by 1p to 1,145......... p and BP closing at 642.5p, up 0.7p.

further afield, the soft drinks group Britvic was among the strongest of the mid caps, rising to 473.1p, up 9.7p, after Morgan Stanley lured the bulls. Revising its recommendation to "overweight", the broker said earnings growth could range in the "mid to high teens" as Britvic's markets recover and it focuses on expanding its margin. "The possibility of consolidation is also greater, offering further significant upside potential," the broker added.

The subprime lender Provident Financial was less successful after HSBC said that while wholesale funding constraints in the consumer credit market should boost Provident's home credit and its Vanquis sub-prime credit card businesses, it will also increase the group's risk profile. "With home credit and Vanquis impairments equal to 63 per cent and 81 per cent of pre-impairment operating profit respectively, a relatively small deterioration in credit quality can have a substantial impact on profit," the broker said, aiding Provident's decline to 873p, down 10.5p.