Evidence of a shortage of skilled brickies and a sharp increase in wage costs hasn't helped investors' confidence.Paradoxically, then, a slowdown in the housing market could ease fears of an unsustainable boom and prove to be good news for housebuilding shares. Yesterday's statistics, which showed that housing starts in November were flat on the same month in 1996, support the view that as many houses will be built in the coming year as in 1997 Some even think starts may fall slightly. Yet investors, who normally love a good growth story, continue to value the majority of the construction sector at a level normally reserved for the most bombed-out conglomerates. In the past 12 months, the sector has underperformed the rest of the stock market by almost a fifth. A good example is Abbey, the tiny Anglo-Irish housebuilder, which yesterday reported that interim profits more than doubled to IRpounds 7.56m. In the coming year it hopes to build 800 houses - double the number of sales it completed in 1997. Yet, despite a good run, this kind of growth stock languishes on a forward p/e ratio of no more than 10. The reason, of course, is that nobody expects the growth to last.
Investors badly burned their fingers on housebuilding stocks in the last recession and, to a lesser extent, in 1995. What is wrong with housebuilders? Here's a sector that generated double-digit earnings growth last year, and is widely expected to repeat the trick in the coming year. Speaking after meetings with representatives of the Bank of England and Bank of France, he said South Korea had asked for a "delay, not a conversion" of its debt. Some creditors have been seeking conversion of the debt to bonds..
In Korea, both the stock market and the local currency showed timid signs of recovery on hopes that the nation's massive debts would be rolled over, providing a badly needed breathing space.Last night Lee Kyung-Shik, governor of the Bank of Korea, called for a roll-over of the country's short-term debt, with repayment delayed. This increased speculation about the extent of Peregrine's problems and its ability to secure outside investors to sustain its business.Elsewhere in the region the news was hardly brighter. Hong Kong-based Peregrine, one of Asia's fastest growing finance conglomerates, admitted that Zurich Centre Investment's agreement to take a 24 per cent stake in Peregrine was being renegotiated.An announcement on the fate of the deal has been delayed until today. Fears of a rise sent the Hang Seng Index down by almost 3 per cent in a day of heavy and volatile trading.As Hong Kong share prices tumbled, the uncertainty over the fate of Peregrine Investment Holdings was prolonged. Yesterday share prices in Singapore fell by 7 per cent, taking the Straits Times industrials index to its lowest point since 1991.Elsewhere in the region, fears of Indonesian contagion were high, particularly in Hong Kong, which seems poised to raise interest rates at a bankers' meeting today. It is now questionable whether the IMF will be prepared to hand over the money.This concern yesterday led Fitch IBCA, the credit agency, to downgrade Indonesia's long-term foreign currency, saying the tabling of unrealistic budget proposals "which publicly flout recently agreed targets with the IMF is a severe blow to confidence in Indonesia's willingness to maintain appropriate economic policies".In addition, Fitch IBCA said the deteriorating economic situation raised political stresses within Indonesia, since the Suharto regime has drawn much of its legitimacy from economic success. Other factors included the fact that export earnings would be hit by recent falls in oil prices, while the banking sector could be affected as the plunging currency put pressure on the country's corporate sector.The ripple effects of the Indonesian crisis have so far had the greatest impact on neighbouring Singapore, which has close economic ties with Indonesia.