Interactive Investor

Inflation data winners: the dirt-cheap sector everyone’s buying today

19th July 2023 13:50

by Graeme Evans from interactive investor

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Most stocks moved higher following encouraging UK inflation data, but there’s one area of the market that’s done better than the rest. Our City writer runs through the big movers.

Investors reaching for opportunities 600

Hopes of a turn in the cycle for UK-focused stocks proved too much for investors to ignore today as Persimmon (LSE:PSN), Lloyds Banking Group (LSE:LLOY) and British Land (LSE:BLND) raced higher today.

The trio were among the headline movers as 97% of stocks in the FTSE 350 index reached midday in positive territory, buoyed by early signs that the relentless march higher for UK interest rates may slow after inflation’s lowest reading since March 2022.

The FTSE 250 index jumped 3% and stayed there, with top performers being the publisher Future (LSE:FUTR) and tech investor Molten Ventures (LSE:GROW) as investors revisited growth plays.

The trends were just as eye-catching in the FTSE 100 index, which had been slated to open the session broadly unchanged but ended up rallying 100 points to a one-month high.

That was despite heavyweight mining stocks being among the small number of fallers, with today’s update from Rio Tinto (LSE:RIO) providing a reminder to investors about the threat that China’s faltering post-lockdown recovery poses to the global economic outlook.

For much of the rest of the top flight, a sharply weaker pound on revised Bank of England interest rate expectations meant support for dollar-earning stocks.

But the biggest gains were reserved for the property sector, particularly the housebuilders that have been under pressure ever since a government drive on building safety remediation costs in early 2022.

Profitability has been further hit by rising building costs and more recently the hit to demand after the average two-year fixed residential mortgage rate rose to today’s level of 6.81%.

For Persimmon, its exposure to first-time buyers has left it at the sharp end of the mortgage squeeze to leave shares near the £10 threshold for the first time in a decade.

Today, they were a healthier looking 1,175p after rising 13% this week as bargain-hunting investors sensed the tide may finally be turning for a sector that comes with a record of significant dividend appeal.

Investors also bet on the start of a cyclical upturn in the real estate sector, having recently seen leading stock market valuations fall to below where they were in the aftermath of last autumn’s mini-budget turmoil.

Higher interest rates diminish the appeal of property as an investment class, with the rise in yields recently contributing to Paddington Central and Broadgate owner British Land reporting a 12.3% full-year decline in its portfolio value.

It recently lost its FTSE 100 status after shares fell more than 20% in the first half of this year, but a strong balance sheet and a prospective dividend yield above 6% means the stock attracted robust buying interest today.

Elsewhere in the sector, buyers of warehouse and logistics business Segro (LSE:SGRO) were further encouraged by analysts at Exane BNP giving the FTSE 100-listed stock an “outperform” rating and 900p target price. Shares were 46.2p higher at 789.4p.

Hopes for a return to more benign trading conditions also accelerated this week’s recovery of banking stocks, having rallied yesterday on the read-across from strong earnings figures by US-listed lenders Bank of America (NYSE:BAC) and Morgan Stanley (NYSE:MS).

With the UK industry due to report its own second-quarter figures from next Wednesday, Lloyds stood at 46.4p this afternoon after adding 1.5p over the past 24 hours.

And potential respite from rising debt costs meant utility stocks returned to favour, with United Utilities (LSE:UU.) up 36p to 990.6p albeit still 100p short of the level seen in early May. BT Group (LSE:BT.A), whose outgoing chief executive this week voiced his frustration at the London market’s short-term outlook, rose 3p to 124.7p on the back of today’s developments.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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