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Prime Minister Boris Johnson (C-R) speaks with Andrew Swindell, regional director of Barratt Homes (R), during a visit to the Barratt Homes – Willow Grove housing development on November 21, 2019, in Bedford, England.
Dan Kitwood/Getty Images
U.K. home builders have had a strong run of late. The FTSE 350 home construction index — with companies including Persimmon PSN, +3.54%, Berkeley Group BKG, +2.08% and Barratt Developments BDEV, +4.78% — has bounced 30% of the lows of the year.
That makes sense, as house prices have been strong, and mortgage approvals also have beaten expectations. The holiday from stamp duty — which is a tax assessed on house purchases — also has been a tailwind.
Goldman Sachs strategists, however, warn the sector is vulnerable to two things. The first is the sustainability of house prices. Once the U.K. furlough rules end at the end of October, Goldman Sachs economists expect the U.K. unemployment rate to rise to 9%. Another risk, they say, will be the end of the stamp duty holiday.
Another risk for the builders would be bad news on post-Brexit trade negotiations, which would be push down the pound as well as increase general uncertainty. Granted, Goldman expects a so-called “thin” trade deal to be signed, “but the risks remain high.”
The FTSE 100 UKX, +0.82% on Monday enjoyed solid gains, rising 0.6% in afternoon trade. Some of the hardest-hit stocks of the year advanced, including Rolls-Royce Holdings RR, +5.81%, Melrose Industries MRO, +6.00%, and Royal Dutch Shell RDSA, +2.37%.
Cineworld CINE, -37.90% shares fell 38%, as it said it will be suspending operations at all of its 536 Regal theaters in the U.S. and its 127 Cineworld and Picturehouse theaters in the U.K. from Thursday. Cineworld said it is “assessing several sources of liquidity.”
Weir Group’s shares WEIR, +16.01% surged after reaching a $405 million deal to sell its U.S. oil and gas division to Caterpillar CAT, +2.84%.
