The end of the bull market?

British Land's comments on the market today made for interesting reading. While rental demand is strong, BL management quite correctly note that with bond yields rising, and property yields much reduced from previous periods, net asset value may rise more slowly in future (if it doesn't decline).

The basic maths is easy. If yield decreases, the price of the asset increases. So previous revaluations of BL's asset value have been driven by low interest rates and particularly by declining yields on property comparative to other asset classes.

So even though the rental stream itself doesn't appear at risk, it may be less valuable than we think.

That makes property prices look exposed. If you then add into the equation any potential softening in the economic climate - particularly for UK retail property - you are not going to like what you see.

My diagnosis; limited or zero upside, and quite a large potential downside.

Unsurprisingly the market didn't like the statement. The shares are off 60p today. Amazingly, they're still trading above the company's asset value.

Now you can call me old fashioned, but I can remember this stock trading at a 50 percent discount to net asset value. That's too much, but property companies traditionally do trade at a discount. The only reason they would trade at a premium is that you expect the asset value to increase - so effectively you're paying tomorow's price today.

Now BL management has told us not to expect a further increase in asset values. So what does that have to say about the value of the stock?

You guessed it.

I'm not quite sure this is the end of the bull market - but it is certainly the beginning of the end.