STUART MARTIN, co-manager of the First State Global Property Securities fund on Specialist Markets
Global property securities have performed well in 2010.
The UBS Global Property Investors Index rose by 11.2% in sterling terms, compared to 0.5% of the MSCI World Index. Global listed property outperformed as investors remained positive about the long-term prospects of the asset class, which should benefit from economic recovery, low interest rates and urbanisation trends in emerging markets.
During the period, markets were particularly concerned about a potential housing bubble in China, where economic growth has been very strong and property prices have been on the rise. The Chinese Government has introduced a number of tightening measures during the first half to slow the buoyant market, but it remains to be seen how successful they will be.
Many Western governments are being forced to cut expenditure and raise taxes, particularly in the eurozone. There is also uncertainty about regulatory change, which could lead businesses to delay making decisions about new hiring and investment. This is likely to subdue the economic recovery with some investors concerned about a possible double-dip recession. Fiscal austerity coupled with unemployment is also likely to have a large impact on consumer spending. Offsetting this is the low absolute level of interest rates, which is supportive of financing in the property sector. As a result, we expect the overall path to recovery is likely to remain turbulent.
However, there are particular bright spots within the listed property market.
Intra-regional divergence is likely to be a key theme going forward, with more positive prospects for Scandinavia, Canada and Brazil.
We remain positive on the Asian-listed property markets because of sound economic fundamentals in Australia, China and Singapore as well as a favourable supply/demand outlook. In Japan, valuations are attractive, but the timing of the recovery remains questionable. In the US, we are concerned about a potential slowdown in growth and have switched out of sectors such as hotels, which are exposed to the cycle, into apartments and quality retail. We remain confident about the medium-term outlook for China. Although the tightening is impacting demand and pricing, it is unlikely to lead to a downturn.
In the medium-term, as austerity measures take hold, historical performance suggests Reits should outperform. We remain positive about the long-term outlook for global property securities. The asset class should continue to be driven by economic growth and low interest rates.
Stuart Martin is co-manager of the First State Global Property Securities fund
