FTSE 100 is gaining momentum while property value plummets:
Friday 30th September 2016
The FTSE 100 index has gained momentum and reached a ten-month high after recovering from the downfall caused by the shocking decision of Britain to leave the EU. It also gained some boost after the announcement made by Bank of England regarding its reversal of 0.5 percent counter cyclical capital buffer imposed on the commercial banks of England. The recent Financial Stability Report from the Bank of England announced the reversal of capital buffers which is a positive thing for commercial banks as it won’t be necessary for them to hold on to huge cash anymore in proportion to their risk-weighted assets. Hence banks would release an estimated amount of 150 Billion pounds into the economy which is positivenews for investors. Also it was noted by Governor Mark Carney that financial sector is in much better shape than before and there is no possibility of any financial crisis in near future.
Though FTSE100 has surged and reached a 10-month high of 6,800 points due to the rise in market prices of oil and precious metals, still the FTSE250 is not doing that great and fell by 2.5%. Sterling is also continuing its downfall and reached a record-low value of $1.26 overnight. Property shares had witnessed a huge downfall after reports from a market survey stated that construction industry is suffering its worst performance in the last 7 years. Housebuilders and property shares have already taken a big hit as a result of the Brexit vote. The shares of British Land Company plummeted by seven percent and shares of popular house builders Berkeley Group and Permission fell by more than six percent. Also the housing market is expected to take a big hit anytime since more than 60% of bank lending in UK is towards mortgage and people are struggling now to payback their loans. Britons are taking on lot more debt to purchase a home since wages are not rising in the same ratio as property prices. The shares of mining companies surged because of the rise in prices of precious metals like Gold and silver. Shares of Fresnillo plc, a popular silver and gold mining company rose by 7.6 percent while shares of Glencore and Randgold resources also surged by 4 percent.
The FTSE350 Real estate index fell by 3.4% and the Housing and property shares witnessed a significant downfall as a result of the Brexit vote.According to anyoption.co.uk, soon after the referendum voting came in favor of British exit from the EU, the valuations in underlying assets fell sharply and many open-ended funds have further reduced the valuations to ensure that any redemption values will mirror the present market prices. Long term investors should consider these re-valuations as accounting adjustments which will get normalized over time. Also some open-ended funds have suspended redemptions to temporarily prevent investors from selling their assets at reduced prices which will further weaken the property market. Though property market is temporarily down, still its good way for long-term investors to diversity their asset portfolio. Commercial property is still considered as a better investment compared to government bonds with negative or significantly low returns.
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