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The future remains grim for the UK commercial property sector despite the strong rally in shares of leading developers since hitting a low point back in March.
According to the US investment bank JP Morgan, the big property developers continue to stagger under high levels of debt with shareholders facing the prospect of being asked to dig deep for extra cash to help strengthen weakened balance sheets.
The UK property sector has risen 82% since March. That is its biggest rally in 34 years and analysis of 14 rallies since 1966 suggest there is still scope for improvement in the months ahead. But JPM is not so sure and estimates the sector is already 14% overvalued.
The bank is convinced it could be all downhill from here on in with our own domestic market looking particularly vulnerable. Property values have risen 20% on the year to date, but improvements in rental income are being offset by the cost of huge debts.
Top of JPM's hit list is Derwent London, 14p better at 1163p, Liberty International, up 12p at 536p, and Segro, 2.3p cheaper at 358.1p, all of which are rated underweight.
Morgan Stanley has moved to catch-up with events in the property sector following the recent rally. It has raised its targets for Land Securities, up 5p at 622p, from 260p to 560p, Segro from 170p to 330p, British Land, down 1.2p at 483p, from 195p to 370p, and Liberty International from 195p to 400p.
Shares generally faltered after an early mark-up, partly reflecting the overnight setback on Wall Street. Leading shares were a touch softer in thin trading. The FTSE 100 Index posted a loss op 5.2 at 4903.6. Second liners wobbled with the broader FTSE 250 Index left nursing a loss of 49.3p at 8768.1.
Drugs giant AstraZeneca posted a rise of 67p at 2906½p after Goldman Sachs repeated its neutral rating, but jacked-up its target from 2800p to 3000p. The group says its new blood thinner pill Bilinta is an improvement on the current market leader Plavix. Rival GlaxoSmithKline also added 28p at 1230p.
Insurer RSA Insurance Group was the biggest faller among leaders with the shares shedding 5.1p at 125.4p. Weekend reports claim the group is looking to tap shareholders for up to a billion pounds by way of a rights issue. It wants the extra money to help strengthen its balance sheet. JP Morgan and Merrill Lynch have been appointed to put together the fund raiser.
In New York, shares on Wall Street beat a retreat yesterday despite a flurry of news on the takeover front. The focus of attention for investors remained firmly fixed on the lack of spark in the Chinese economy and that left the Dow Jones down 47.92 at 9496.28.
The big news of the day featured Walt Disney's proposed $4 billion (£2.4 billion) takeover of Spider-Man and Incredible Hulk producer Marvel Entertainments. Shares in Marvel responded with a leap of 25% $48.43. Rival DreamWorks responded with a rise of 6.5% to $33.75 on the news.
In the oil services sector Baker Hughes announced it was paying $5.5 billion for rival BJ Services, up 5% at $16.16.
In Tokyo, leading shares moved in and out of positive territory for much of the session with dealers saying that movements in the dollar/yen rate were largely driving the market.
In light trade, the Nikkei 225 rose 37.53 points to 10,530.06. It fell 0.4% yesterday, after hitting an 11-month high of 10,767.00 at one stage.
Over in Hong Kong and Shanghai shares showed signs of stabilising after the recent rout as positive manufacturing data trained some of the focus on the mainland's still-robust economic recovery. China's official purchasing managers' index for August inched up from July's 53.3 to 54.0 — a 16-month high and the sixth straight month that the official PMI has stood above 50. Hong Kong's Hang Seng index ended the morning session 116.08 higher at 19,840.70.
Bank of East Asia jumped 3.6% to become the top percentage gainer on the main index after Guoco Group said it had increased its holding in the Hong Kong-based lender for the third time this year. Guoco Group increased its stake in the Bank of East Asia to more than 7% late in August.
