Everyone understood their opportunity: real estate. In China, it is always real estate. From Red Capitalism, pg38, before launching into a description of the Great Hainan Real Estate Bust of 1988 to 1993. …the stormy situation in national large midsize cities’ housing prices has created a new real estate market craze From a People’s Daily editorial on Tuesday. It’s the “biggest bubble in history” From China’s richest man Wang Jianlin, Sept 28th, on the current state of the real estate market and before… well that bit hasn’t happened yet so we are fine sticking with maybe nothing, but maybe something pretty bad at some point in future.
China has become, to a large extent, a tale of two property markets. There’s Tier-1 — which is nutty — and, as flagged in the headline above, the rest. From Bank of America Merrill Lynch’s China team, with our emphasis:
Ever wondered why hedge funds remain so popular? Against much sense? Here’s one suggestion from JPM’s Niko Panigirtzoglou and team, with our emphasis: Why is the HF industry continuing to attract large amounts of capital [$18.2bn in Q1 up from $3.6bn in the previous quarter] despite disappointing performance? This puzzle is also reflected in HF surveys such as those conducted by Preqin. The performance of HFs has lagged institutional investors’ expectations for every single year since the Lehman crisis with the exception of 2013. At the same time institutional investors reported that they intend to increase rather than decrease HF allocations over the next 12 months. Steady demand for convexity since the Lehman crisis is clearly one reason behind the inflows into HFs. But we believe there is another reason, which is the quest by investors for alternatives to bonds. Successive QE programs by G4 central banks have withdrawn $8tr of bond securities since the Lehman crisis and have made bonds very expensive as an asset class, inducing institutional investors to seek higher yielding alternatives to bonds even as these alternatives entail illiquidity risk. And HFs have to an extent become an alternative to bonds as the collapse in HF volatility has made HFs look a lot more like bonds rather than equities in recent years. This is shown in Figure 1 where the volatility of monthly HF returns has collapsed to that of the US Aggregate bond index over the past three years. In other words, with an annualized volatility of only 3.2%, HFs are equivalent to a bond rather than equity investment in terms of their second moment.
FT Alphaville presents this guest post by Alessandro Rebucci of Johns Hopkins University Carey Business School, based on a BoE working paper that he recently co-authored. In some parts of the emerging world, housing markets have grown well ahead of income in recent years. US interest rates are about to rise, and international capital will revert to the center, seeking higher and safer yields. This will bring about an earthquake in housing markets at the periphery of the global financial system.
Chinese real estate companies raised $5.3bn in dollar bond markets during the first three weeks of 2013 and $4.9bn over the same period in 2014. This year, not a single deal has been completed… “You don’t want to go hat in hand to investors when they feel they’re catching a falling knife,” said the head of debt capital markets at one investment bank.
Sometimes it’s all about the ski chalets. On which note, Knight Frank’s latest dive into the world high-altitude snow-dusted living offers some interesting findings. Among them is the fact that putting your investment money in twee wooden cabins is actually becoming a bit of a thing: For the world’s wealthy a ski home is a key component of their global property portfolio, but increasingly it is being bought not just as a lifestyle acquisition but one that can provide an investment return as well. Which is possibly a neutral bet given the poor but not terrible track record of ski chalet prices during the crisis: Bricks and mortar – of the Alpine variety – did not benefit from the safe haven shift that prime property in cities like New York and London saw post Lehman’s collapse in 2008. Prime prices dipped in the Alps but did not plummet like they did in some of Europe’s oversupplied second home coastal markets.
Ukraine battles rage despite ceasefire talks || Atlas Mara raises stake in Union Bank of Nigeria || Chinese property developers borrow at record pace || Barclays to launch finger vein scanners || Apple to warn users of iCloud hack attempts || Markets
Camp Alphaville reminder: Requests to bring drones to the afterparty will be considered on an individual basis. (Details here) Markets: Most Asian indices were drifting lower in spite of a third consecutive positive session for Wall Street, although Japanese markets continued to climb. The mixed performance followed a somewhat positive session in the US, where the S&P 500 rose 0.2 per cent and the yield on 10-year US Treasuries rose 6 basis points to 2.66 per cent. However, there were some concerns that robust inflation figures could elicit a more hawkish stance from the Federal Reserve which concludes a two-day meeting on monetary policy later on Wednesday. (FT’s Global Markets Overview) An FOMC scenario analysis from Nomura:
Holcim and Lafarge outline cement merger deal || BlackRock positions potential successors to Fink || Dropbox and Square raise new credit facilities || Nigeria almost doubles GDP in recalculation || Former adviser attacks European Commission over austerity || Markets
This week in circularity, from China: Chinese property companies are buying stakes in banks and raising fears that the country’s already stretched developers are trying to cosy up to their lenders. Ten Chinese property companies have invested Rmb18.4bn ($3bn) in banks, according to the Financial News, an official newspaper published under the aegis of China’s central bank.
Markets: Asian markets retreated, reflecting a view among investors that the Bank of Japan would not immediately increase its monetary stimulus while the US Federal Reserve was unlikely to be steered off its course of reducing asset purchases. Markets in China were closed for a public holiday. (FT’s Global Markets Overview)
Arrest warrant issued for toppled Yanukovich || HSBC misses cost efficiency and return on equity targets || Carphone Warehouse and Dixons discussing merger || Deutsche Bank to cut US unit’s assets by quarter to meet Fed rules || China property prices continue to rise || G20 aims to add $2tn to global economy || Netflix to pay Comcast for better speeds || Moody upgrades Spain’s debt rating || The future of BP’s flagship Rumaila oilfield in southern Iraq is in jeopardy || Markets