SEB chief warns against over-optimism on economic recovery

Investors should diversify their investments as much as possible this year in a bid to reduce risk, despite the scent of economic recovery, SEB Asset Management's Chief Executive Barbara Knoflach warned during a conference at Mipim on Wednesday. 'For real estate an overall economic recovery is good but a couple of things should make all of us nervous,' Knoflach said during the conference on Prospects for European Recovery. 'Money flows are much more aligned with capital markets these days rather than with market fundamentals. London, for istance, has come back to price levels seen during the property peak in 2006, despite the fact that the economy is still weak,' she added.

According to Knoflach, investors should diversify their European portfolios with acquisitions in Asia and the US as investing across Europe is no longer enough to protect yourself from bad surprises. 'A lot of us thought of Eastern Europe as the best promise after Asia. This was a big negative surprise and that illusion is now gone,' she said, adding that 'for the next five years at least Eastern Europe will be left behind'.

Knoflach also stressed the importance of taking into account that real estate is not a very mature asset class. 'We have to deal with tonnes of irrational investors,' she added, pointing to the UK capital as a good example of investors' inconsistent behaviour. 'In London, investors are in strong competition again to secure core property and yields are likely to get to 5% by the end of this year'. Knoflach continued: 'Mainland Europe still shows very good conditions to buy at decent levels, but as soon as the money moves to the Continent we will have to deal with the same situation.' She believes it will take just a few months before this happens.