Rightmove also demoted from UK’s top stock index
Berkeley has been demoted from the FTSE 100, the UK’s top benchmark index for listed companies.
Index provider FTSE Russell last week revealed the housebuilder as one of the three firms to drop out of the index this quarter.
The FTSE 100 represents the 100 most highly capitalised businesses listed on the London Stock Exchange.
The index is changed each quarter based on firms’ total market capitalisation at the end of the specified trading day.
To avoid borderline companies yo-yoing in and out of the index, a company has to be in the top 90 by market capitalization to be promoted and below 110th to be demoted.
When a company leaves the index, passive funds that track the FTSE 100 will sell its stock.
While funds that track the FTSE 250, an index of middle-cap businesses, will automatically buy the stock, the higher volume of money invested in the FTSE 100 often results in a net outflow, which can create downward pressure on stock price.
Berkeley’s market capitalisation currently stands at £3.18bn, with its stock price having fallen 4.96% in the past six months.
Housebuilder Berkeley has said it is putting the brakes on buying new land and will instead concentrate on its existing 50,000 homes landbank.
In an unscheduled update in April this year, Berkeley said it was putting the brakes on buying new land to focus on its existing 50,000-home landbank, citing regulatory burdens and reduced confidence in a near-term market recovery.
Berkeley was demoted alongside real estate website Rightmove and packaging company Mondi, to fall out of the list. They were replaced by Aberdeen Group, Computacenter and Investec.
“Berkeley’s demotion ultimately reflects a broader reassessment of risk and return in a changing economic landscape,” said Garry White, chief investment commentator at wealth managers Charles Stanley.
He said the housebuilder’s exposure to the London market explained part of its performance, but that “the broader decline in UK housebuilders reflects a series of sector-wide challenges”.
White cited materials and labour inflation, as well as the impact of higher interest rates since 2021 on affordability, which prompted housebuilders to “slow construction, adjust pricing strategies and, in some cases, offer incentives to support buyers”.
“Hopes that easing monetary policy might provide relief have repeatedly been pushed back, most recently by the conflict in the Middle East,” he said.
“The resulting deterioration in the inflation outlook has prolonged pressure on mortgage affordability and delayed any meaningful recovery in housing demand.”
The latest changes were confirmed by FTSE Russell after the market close on 3 June and will come into effect on 22 June.
Berkeley was contacted for comment.
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