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Could UK equities be headed for double digit growth?

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

More gloomy news from the property sector today, as online property portal Rightmove and estate agency group Foxtons filled investors in on the state of play. And it doesn’t look pretty.

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London Estate Agent Foxtons Group reported widening losses, with lower revenue in the first-half and all the signs that it’s going to continue.

In the six months to the end of June, pre-tax losses widened to £3.2 million from £2.5 million as revenues slipped 3.5% to £51.1 million. Revenue of £31.7 million from its lettings business, unchanged from a year earlier, was offset by a 10% fall in sales revenues to £15.4 million.

“Looking ahead, we expect conditions to remain challenging and have effectively positioned the business to reflect this. In lettings, we expect our ongoing commitment to landlords in light of the tenant fee ban to improve further our proposition and we are confident this will continue to drive market share,” the company said.

As well as a report from London property crunch central, from Foxtons, Rightmove confirmed the sector’s woes are not restricted to London and the south east.

It managed to pull off a 10% increase in first-half revenue on the back of a rise in advertising revenue, despite a 4.6% drop in housing transactions when compared to the first half of 2018.

Revenue for the same six month period as Foxtons reported on was £143.9 million, amid stronger-than-expected average revenue per advertiser (ARPA), while underlying operating profit climbed 10% to £111 million.

All well and good for Rightmove and its shareholders, but down to Rightmove’s unique ad sales model, not the state of the property sector. And very real evidence of the fact that estate agency and letting agency numbers are still in decline.

And, of course, that’s just the residential property sector. The commercial one is faring no better. In fact, figures due out from Intu Properties, one of the UK’s largest commercial landlords, next week, could show that there the situation is even more dire.

While the residential property market can always rely on some income from necessitated sales prompted by the so-called ‘3Ds’ of death, debt and divorce, the same can’t be said of commercial landlords like Intu.

Intu, which owns prominent retail malls and shopping centres up and down the country, from Thurrock’s Lakeside to Manchester’s Trafford Centre, is reliant on shoppers getting out and about and - most importantly - spending. If they don’t, retailers struggle, rents fall due and, as we’ve seen so often of late, compulsory voluntary agreements are ordered, which mean landlords take the hit on reduced rents.

While Brexit is being squarely, if probably a little unfairly, blamed for the residential sector’s woes, it’s also compounding those in the commercial sector.

Figures shows that investment here slumped by a third in the second quarter of the year as buyers held back because of Brexit uncertainty. The amount spent on deals fell to £9.1 billion in the three months to the end of June making it the second-weakest quarter in the past seven years, according to CoStar, a data collection company. The figure was 36% lower than the same period last year, and 34% lower than the first quarter of this year.

And, one of the main reasons has been a drop in demand from overseas buyers, with foreign investment especially from Asia, falling by 39% to just over £4 billion.

While it’s a particularly tough time - yet again - to be in the commercial property sector or invest in it, the property market and that includes the residential sector too is reflective of the overall negative sentiment towards UK Plc as a whole right now.

UK stocks, quite rightly you might say, are being given the cold-shoulder by investors, both at home and away, who feel the combined uncertainties the UK faces are too many to make it investable at the moment.

However, as any contrarian investor will tell you, opportunities abound in markets that are being over-looked by the masses. Largely because, long after the bandwagons have rolled out of town life goes on pretty much as normal.

I appeared on three BBC programmes this week, and each time the same topic came up, whether the three Bs this time - our new PM Boris Johnson, the Brexit effect and bargain Britain - mean investors are wise to stay away from the UK for now.

The short answer is no.

It’s a fact that shares have historically done better under the Conservatives, plus as any contrarian knows there are plenty of thriving companies in the UK right now that are unloved and trading at a low. Simon French from broker Panmure Gordon reckons that on average UK stocks are 20% below where they should be.

If you quite fancy being there when those unloved stocks start to turnaround but you don’t fancy taking a punt on which will, this is where an experienced fund manager can come in and sift out the true beauties.

Our Select 50 range of preferred funds has eight that focus solely on the UK, whether you’re looking for income or growth, or a bit of both.

UK stocks should be written off at your peril. After all, if Mr Johnson pulls off a swift and orderly Brexit, it could turn out that UK equities have been sitting pretty all along.

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.