MARKET COMMENT: FTSE 100 Recovers January Losses, Led By Property Stocks

LONDON (Alliance News) - UK stocks have made solid gains Monday, led higher by property companies after a house price survey showed the UK property market is continuing to boom. With an otherwise empty data calendar and US markets closed for the President's Day holiday, the FTSE 100 has rallied to within 15 points of the level at which it started the year, before the heavy equity sell-off sparked by emerging market growth concerns.

The FTSE 100 has closed up 1.1% at 6,736.00, bringing the UK's leading index very close to the 2014 opening level of 6,749.09 points. The FTSE 250 has closed up 0.8% at 16,244.71, and the AIM All-Share has closed up 0.4% at 878.61.

The only UK economic release of the day came from Rightmove and showed that the average asking price for a house in the UK went up by 3.3% month-on-month in February, following a 0.1% increase in January. On a yearly basis, the house price index shown prices up 6.9%.

Bank of England Governor Mark Carney again said over the weekend that the central bank is keeping a close eye on rising house prices. With Monday's survey showing house prices still booming, investors will be awaiting Wednesday's release of the Monetary Policy Committee notes with interest to see how much attention the issue got at the latest rate setting meeting.

Analysts suggest that property investors are set to benefit from the UK-wide market rather than just the central London boom that has been driving the market higher; the central bank may suggest this indicates a wider market recovery, rather than a property bubble.

"With economic confidence becoming more broad based and property yields in the regions looking elevated compared with central London, regional locations are starting to provide investors with healthy returns," said M&G Real Estate analyst Guy Sheppard. "London is doing well, but the regions are coming out of hibernation," says Sheppard.

For now the price rises continue to benefit the real estate investors and house builders, with those sectors of the FTSE 350 up 1.9% and 1.2%, respectively, Monday.

Real estate investment trust Hammerson PLC was the top blue-chip gainer Monday, closing up 3.1%. The company, which is now focused on retail properties in the UK and France, announced preliminary full-year results that showed pretax profit of GBP326.3 million for the year, up from GBP93.5 million in 2012, boosted by revaluation gains of GBP90.3 million. Liberum Capital noted that the REIT trades at a discount to both its UK and European sector peers and called Hammerson the best sector play on the UK economic recovery. Fellow REIT's British Land and Land Securities followed higher, closing up 2.3% and 1.9%, respectively.

The housebuilders all recorded gains Monday, with the best performers Berkeley, Barratt Developments and Taylor Wimpey, closing up 2.3%, 2.1% and 2.1%, respectively. As a result of the current house price boom these three companies are now within the biggest seven by market capitalisation of the FTSE 250 index. It seems increasingly likely that another housebuilder will soon join Persimmon in the FTSE 100 at the next index review, although that review is not until March 12.

The mining and metals sectors also gained Monday on the back of both rising precious metal prices and much higher-than-expected Chinese bank lending numbers. The FTSE 350 mining sector gained 1.5%, while the industrial metals sector gained 0.5%.

Chinese bank lending data rose to its highest level in four-years in January, "signalling that strength lies within the tiger yet," said David White, financial trader at Spreadex. Banks lent CNY1.32 trillion in new loans in January, up from CNY482.5 billion in December.

Gold has continued its recent recovery Monday, as the dollar remains under pressure. The gold price peaked in early trading at USD1,329.72 per ounce, a 15-week high. Silver also has pushed to a three-month high, currently trading at USD21.812 per ounce.

Sentiment among investors has improved noticeably of late, Commerzbank analysts said in a note to investors. In the week to February 11, net long positions in gold hit a 14-week high of 52,100 contracts, while Silver net long positions increased more than four-fold to 10,000 contracts. This momentum points to further price rises in the short term, says the bank.

Amid the lack of any macro economic date, major forex pairs have been very quiet Monday. Against the dollar, the pound is marginally lower at USD1.6710 and the euro is little changed at USD1.3705.

On Tuesday, interim 2014 results are due from BHP Billiton, along with full-year 2013 results from Wood Group, Intercontinental Hotels Group, Drax Group, Pendragon PLC and AZ Electronic Materials.

Early investor sentiment may be taken from the direction of Asian markets Tuesday, especially if there is any change to monetary policy by the Bank of Japan, which sets its interest rates overnight.

A busier day in the economic calendar follows, with UK inflation data providing the morning focus, due at 0930 GMT. Economists expect the headline consumer price index to have remained stable in January after falling to the target 2.0% in December.

The German and Eurozone ZEW surveys of economic conditions are due at 1000 GMT, then in the afternoon the US New York Empire State manufacturing index is due at 1330 GMT, followed by the Redbook retail sales index at 1355 GMT.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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