London Falling?

By Zak Mir

Earlier in the week it was widely reported that those strange creatures allegedly responsible for many of the ills of the world – hedge funds – were positioning themselves to go short of London real estate. Since then I’ve been mulling over whether our friends in Mayfair have identified a slam dunk opportunity for making money, or will they simply be one of the many foolhardy souls who prematurely called time on one of the greatest and most enriching bull markets in any asset class over recent decades?

That said, it would appear that you have to be a brave soul indeed to be willing to either buy into London real estate at current levels, or be willing to take a punt on the politics/outcome of the May General Election. While the hope amongst the property bulls is likely to be that Labour should have made itself unelectable on the basis of the “charisma” (or lack thereof) of its present leader and the Mansion Tax, the complexity of having UKIP, Greens, LibDems, SNP and the tax avoidance blighted Conservative Party, make it rather challenging to read even the most clear of crystal balls in terms of the composition of the new 2015 Parliament.

But what we do know, as something of a stock market cliche, is the way that uncertainty can very often be the most bearish of factors. On this basis even if London house prices do not actually fall, we may see any positive momentum in the proxies to this market dry out, thus allowing hedge funds to turn a profit over the next three months.

In fact, my main area of hesitation regarding getting on the shorting bandwagon this week was that the likes of Foxton’s (FOXT), Savills (SVS) and Berkeley Group (BKG) were cited by This Is Money as being in the firing line by the shorters, but did not really look like they were in bear mode. That said, given that Foxton’s has already served up two profits warnings in the recent past and most of us are aware that there is a rule that profits warnings come in threes, shares of this company would probably be fair game for the bears anyway.

Indeed, using technical analysis rules, it may be best to wait on any spike towards the 200 day moving average currently at 228p before thinking of going against what has been quite a sharp rally from towards £1.50 in the second half of January.

Fellow estate agent Savills (SVS) may also be in the crosshairs of the hedge funds, but it has to be admitted that at first glance we are not looking at a charting situation that one would necessarily be pessimistic about. This is despite the fact that we have seen a topping out process below £7.50 during the start of 2015.

Given the way we are in the aftermath of a significant unfilled gap to the upside last month, the problem is that there would really have to be a sustained break back below 700p and the top of this gap before one would feel comfortable that the extended rally here for the upmarket estate agent has finally come to an end. Indeed, aggressive traders might be looking to momentum buy this stock on as little as an end of day close back above the 20 day moving average now running at £7.25, something which may lead to the 750p resistance zone breaking later this month.