Is there light at the end of the tunnel? At the 2008 MIPIM Asia trade exhibition listed property and property derivatives were the focus of some optimism. Michael Grimes was in attendance
The announcement early in January from the China Federation of Logistics & Purchasing that China's manufacturing sector may be on the brink of technical recession may explain why the mood at MIPIM Asia 2008 in Hong Kong was a little more subdued than the year before.
Although the event attracted 2,077 delegates from 929 companies based in 46 countries, the exhibition hall was noticeably less crowded than at the equivalent event in 2007. Property journalists experienced the novelty of being buttonholed on occasion at the event's media centre by executives anxious to boost the footfall at their various exhibition stands. When it comes to trade exhibitions, however, quantity of participants does not always equate with quality of business transacted.
"We certainly had the impression that the people who came to see us at MIPIM Asia were serious about doing business," says Gordon Marsden, senior associate director, investment department for DTZ in Hong Kong.
"As for everyone in the current market conditions, the issue is timing," Marsden added.
Glenn Maguire, chief economist, Asia Pacific, for Société Générale Corporate and Investment Banking, was similarly upbeat in a pre-opening keynote address to the conference.
"It is an extremely difficult time to be making forecasts but I think we have moved to a stage where bearishness is too extreme and bullishness should not be completely ruled out," said Maguire.
He added that the International Monetary Fund forecasts for emerging economies had not been revised downward to the same extent as those for developed economies.
"What the IMF was saying is that all those policies put in place in the 1990s to restrict lending in Asia have actually worked," explained Maguire.
Timing and asset format will be critical factors in determining investment success in current market conditions, said Chris Reilly, director of property, Asia, for Henderson Global Investors.
He says: "Forecasts can change quite rapidly. We think we will see rises of in excess of 20% in the listed property sector in the region over the next 12 months. I'll be the first to admit that we need to see stability in capital markets first. Banking stocks and financial stocks need to find the bottom of the market before you can realistically predict listed real estate sector growth. It is driven by sentiment. "But otherwise in a stabilising environment property equities is a very liquid market that's easy and cheap to access, easy to diversify in and which is promising quite attractive returns over the next 12 months.
"The expected return profile from property equities is undeniably quite attractive at this point. We can see some quite deep discounts to what we would call true asset value, of some of these listed property companies and REITs," added Reilly.
"The key is you get liquidity from day one. For some investors that's what they want. They want the option of being able to take their money out. In the direct or fund of funds space, if you're investing a relatively small amount, say US$10m, you're not going to have very much control in any of those funds. So to get a diversified exposure, with US$10m you can buy something like the Henderson Asia Pacific Property Fund where you're immediately getting exposure to all of Asia from Tokyo, through China to Hong Kong, Singapore and ASEAN markets down to Australia."
In Asia local knowledge remains vital to investment success regardless of bull market or bear market, and irrespective of whether the investor is seeking direct or indirect exposure says Nicholas Wong, managing director, Asia Pacific Region, ING Real Estate Select.
"The issue is that real estate will remain a relatively opaque asset class. We believe there's no substitute for local knowledge," stressed Wong. He added: "Whether it's a listed or unlisted fund, I think in today's environment, you especially need to look carefully at the management of the fund, the track record and the team members.
"The company itself may have been around running funds for 10 years, but the team themselves may be very, very new, so that track record may not be applicable, so therefore due diligence is extremely important. We check on the manager, the track record, the portfolio, also the pipeline. We look at the private placement memorandum because we need to check the legal liability. We also have to verify the strategy and the target returns to make sure they are achievable. In a lot of cases we also verify the property valuation," added Wong.
Stephen Moore, head, GFI Colliers, a Hong Kong-based property derivatives joint venture between Colliers International and GFI Group Inc, said Asia Pacific property derivatives should not be ruled out by investors despite the bad press given to derivatives products and markets recently.
"The key advantage is for the developers - those people with long physical assets - that's really where you can see the advantages of trading derivatives, as a hedge against market risk, such as development risk," said Moore.
"It's certainly the case that the risk appetite for new products is diminishing in the current economic climate. So we're up against it. But we've seen a decent amount of interest in Asian property derivatives at MIPIM and a good amount of deals have been done already. There's risk out there that needs to be flattened, and there will be more trades I believe."