Market snapshot: latest investor reaction to Middle East conflict  

The reverberations of the Middle East conflict continue to be felt around global equity markets and other asset classes, with sentiment remaining brittle.

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US markets staged something of a recovery as last night's trading session wore on, although each of the main indices finished in the red. The slight improvement came after the President’s suggestion that the US Navy would escort tankers through the Strait of Hormuz, although the practicalities and likelihood of such a gesture are questionable. The comments were nonetheless sufficient to cap the gains of a spiralling oil price, although it remains some 37% higher this year. 

The underlying concerns remain firmly in place. Escalation and duration of the conflict were the main worries and, with the former now in place, the length of the troubles will have increasing indirect impacts. 

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The higher oil price could cause another hike for inflation the longer the conflict lasts, at a time when investors had been hoping for a reduction in interest rates which currently looks unlikely. In addition, such a scenario could crimp investment by businesses, particularly at the smaller end where companies borrow to grow, and also reduce spending by consumers, putting pressure on growth globally. 

The pressure has left each of the main US indices with little reason to cheer, as investors have sought havens elsewhere. In the year to date, the Dow Jones is now ahead by just 0.9%, while the S&P500 and Nasdaq have succumbed to losses of 0.4% and 3.1% respectively. 

Asian markets continued to bear the brunt overnight, particularly those countries with a heavy reliance on importing energy, with the South Korean Kospi market falling by 13% at one point before recovering slightly, and the Japanese Nikkei 225 shedding 3.7% as dollar strength exacerbated the situation.

There were signs of a floor having been reached in the UK, at least temporarily, where after a couple of bruising sessions the FTSE100 limped to a marginally positive open. Unconvincing full-year numbers from Weir Group (LSE:WEIR) weighed on the index, although there was some evidence of bargain hunting among established names, especially those exposed to overseas earnings where the strength of the dollar will make profits more valuable on repatriation.

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Biggest risers in early trade are Experian (LSE:EXPN), Intertek Group (LSE:ITRK), Pearson (LSE:PSON), Tesco (LSE:TSCO) and Smith & Nephew (LSE:SN.). At the other end, after Weir, it's a struggle for Persimmon (LSE:PSN), Barratt Redrow (LSE:BTRW), Melrose Industries (LSE:MRO) and HSBC Holdings (LSE:HSBA). 

It remains to be seen whether this tentative climb is the beginning of a recovery having priced in the implications of the conflict, or whether it is simply a relief rally buoyed by some investors choosing to buy on the dip. In any event, the primary index remains relatively unscathed, with its 5.7% gain in the year to date lower than previous highs, but showing some signs of the defensive resilience which has been an investment attraction to global investors in the recent past.

Vistry full-year results

While the numbers themselves could point to the worst being over for Vistry Group (LSE:VTY), the same cannot be said for its share price which has been savaged in early trading as sellers find themselves pushing against an open door.

The year has proved to be one of two contrasting halves for Vistry, with a weak first six months partly reversed by the Government announcement on affordable housing, which plays into the group’s Partnerships strategy. Vistry is now focused on a Partnership programme with organisations such as local authorities and housing associations, which drives the majority of completions. 

The Government announcement of a £39 billion, 10-year Social and Affordable Homes Programme (SAHP) was one which the group unsurprisingly welcomed, since it will benefit from this unprecedented funding which is aimed, in part, to deal with the national housing supply shortage. Indeed, the group has already secured a £50 million grant for affordable housing from Homes England, which it hopes to receive towards the middle of this year.

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Revenue for the full year fell by 4% to £4.16 billion, marginally shy of the £4.2 billion previously guided, although adjusted pre-tax profit rose by 2% to £268.8 million. Completions fell to 15,658 from 17,225 homes, with Partner demand suffering prior to the June spending review and with open market business still hampered by consumer affordability challenges, less interest rate cuts than had previously been anticipated and uncertainty around the Budget.

However, the group has a substantial forward order book of £4.5 billion, which provides a strong springboard for the year to come. It also gives some visibility on earnings which, coupled with the additional growth which the SAHP should provide, bodes well for immediate prospects. In addition, the Spring selling season is looking promising, with a mixture of pricing initiatives and incentives already having an effect. 

The group will not return to the payment of a dividend for the time being as it concentrates on cash generation to strengthen its financial position. Indeed, in this period net debt fell by 20% from £180.7 million to £144.2 million, while at the same time the group was able to purchase 12,600 plots for the year with an eye on future profitability.

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The general rerating of the sector and a rising tide of optimism has tended to lift all boats, although for Vistry the share price increase over the last year had been limited to just 1% prior to this release, as compared to a gain of 14% for the wider FTSE250. However, this is far from sufficient to offset the damage wrought by the previous profit warnings, which leaves the shares down by 43% over the last two years. 

With some investor trust having evaporated as a result, it could be some time until confidence in the group’s prospects can be rebuilt. Indeed, the market consensus of the shares as a hold could come under downward pressure until a more sustained recovery becomes evident, as reflected by the extreme reaction to the numbers in opening trade.