Spread Betting on Construction Sector Shares
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Anyone who trades construction industry shares will have seen how much share prices have fallen over the past 12 months. Anyone spread betting on those shares to fall could have made a tidy profit.
Back in the summer Taylor Wimpey’s inability to get a fund raiser off the ground really hit the market. At that point we had become used to shareholders routinely stumping up the cash for emergency capital requirements. It is always a shock to discover that there is a limit to what shell shocked investors will stomach. With the property ‘slump’ only about six months old it was obvious that investors would rather see the stock crumble than throw good money after bad. If all the developers were in that much trouble when the UK was not in a recession what does the future hold?
The lending banks are unlikely to put themselves further into hock over the builders expensively acquired landbanks. We now have the very real possibility that a number of the major developers will go to the wall.
The lenders and bond holders will end up owning the various landbanks, the share holders will have lost all and the builders will become yet another name plaque on the ‘Marconi’ wall of fame.
One area that could save individual companies is UK Government spending. Times are going to get tough, no doubt. However major construction works are still going ahead and there is, finally, a sense that the UK will be pushing through the major upgrades to the infrastructure. Upgrades that governments, of whatever hue, have avoided making decisions on for years in fear of upsetting voters.
The creation of a major projects Quango, which can override local planners, with no requirement for ‘Public Inquiries’ has been needed for decades. It will presumably push through the Nuclear, Coal, Rail, Road and Air developments that have sat on the sidelines for more than twenty years.
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We always ask ‘why does France have such great road and rail links?’ the answer is that they can force through projects of national importance without reference to ‘Mr and Mrs Jones at number 21’. Gordon Brown is unlikely to ever be a ‘popular’ PM so he might as well push through the vital decisions to show he is still fighting for the UK economy.
These public works could certainly boost some shares prices. Although now that the Government has taken large stakes in the banks such spending could be limited.
So what to do? Could it get worse? Is there any value to be had in the financial spread betting markets? Share prices have already plummeted. Well it would seem that the banks are now eyeing the builders with trepidation once again. The various landbanks built up by the big players are falling in value almost by the minute. Most of it is backed up with bank loans. The servicing of this debt when home sales are effectively dead in the water is likely to ‘take care of’ several companies over the next quarter.
The whole scenario is a sort of desperate catch 22.
The builders are liable for the debt to the banks. They cannot sell properties because mortgages from the banks are getting as rare as hens teeth. The banks are in a hole over the loans but cannot lend, responsibly, because of the current economic situation, because the FSA has slapped an 8 to 9% Tier one ratio on them and because they cannot get the mortgages off their books via an Mortgage Backed Security because the market has effectively imploded.
Time to sell the builders or will Gordon save the day?
"Spread Betting on Construction Sector Shares" last update by R Thomas, 03-Nov-2008
Warning: Financial spread betting carries a high level of risk. You can lose more than your initial investment or stake. Financial spread betting may not be suitable for all investors. Only trade with money that you can afford to lose. Make sure you fully understand the risk involved. If necessary, seek independent financial advice.
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