31st January 2012: The Tale Of Two Cities: New York Property Dynamics Versus Shanghai Property Dynamics

Quote of the Day:

We will continue to strictly implement and gradually improve policies aimed to discourage house-buying for speculation or investment purposes

 

Chinese Premier Wen Jiabao.

 

Macro Overview

US Property Is Beginning To Draw Investors

• New York apartment yields are booming. In fact, if you’re a New York realtor, not all is bad – especially in the buy-to-let market. The economy may be a little wobbly but the fluctuations in real estate activity in many of America’s iconic cities seem to dance to a different beat.
• Most people do not have billions of dollars of hard capital, locked up for months or even years. But for those that do, the American property market is beginning to look attractive in places.
• I emphasize the word “beginning” because this asset class is certainly not for the faint-hearted – especially as we appear to be entering another global slowdown and the bad news still keeps pouring in.
• That said, there may be some attractive opportunities in this market in specific pockets and (for those not able to do localized research) in companies or funds with the expertise and resources to deploy towards property investments. The Bloomberg article highlights how some Private Equity Funds are circling real estate ventures in the US. Whether we see the bottom for US house prices nationwide in 2012 or not, another down-leg in economic activity and a pretty firm promise from the Fed to keep mortgage rates low and from the Government  to reduce inventory will surely tempt some savvy investors.

 

China Property Is Beginning To Draw Attention

• China is deliberately cooling its property market, which is a good thing for the economy as a whole. But what is good for the Chinese economy is not necessarily good for property investors or property developers – both of whom seem to target high end residential and commercial properties.
• It should be unsurprising to most that the Communist Party do not care too much if high-end property investors and over-extended property billionaires do take a hit on their inflated real estate portfolios. I’m going to keep this brief and just link you to a little excerpt from the Shanghai Daily yesterday.
• If you’re an investor that cares about keeping an “international perspective” you’d probably do well to follow developments in Chinese policy toward property prices – just today CNBC quoted Chinese Premier Wen Jiabao as saying:

We will continue to strictly implement and gradually improve policies aimed to discourage house-buying for speculation or investment purposes

Market Overview

Japanese Companies Feel The Pinch

• Japanese companies are some of the most competitive in the World, but not even they can withstand the Dollar/Yen with a 7-handle. If you remember, dear reader, at the end of last year, the Ministry of Finance vowed to defend the Dollar/Yen from falling. They ramped the exchange rate up to nearly 80 Yen to the Dollar. At the time I, could not hide my cynicism:

Today I just want to focus on one thing. The Yen. Remember the MoF effectively smashed the Yen right the way back to 78 vowing to defend the level and slash any trader that dares to cross it. It looks like today the market had other ideas. As I wrote last month:

“Japanese Yen intervention is Chart of the Day. Trying to change the market is much like trying to change the weather… you can try … it may even appear to succeed for a long period of time. But a free market could just as easily turn around and take your head off on a whim – just ask the Bank of England.”

• Where is the Dollar/Yen today? A lowly 76.30 … a flea’s whisker away from the all time low of 75.35. RememberJapan’s fastest growing market,China, is pegged to the Dollar and so is falling almost in lockstep. Today companies like Honda, Fujitsu and Toshiba projected pretty dismal outlooks on account of the stronger Yen.
• Chart of the Day is Dollar/Yen.

 

Bye Bye January

• All things considered, a pretty good start to the year for risk assets, despite the softening at the end. Also most sovereign credits tightened nicely with bond auctions around the World going well -Portugal being the biggest concern on the horizon).
• I still cannot quite get my head around why the market rallied like it did when it did – I expected the rally to start early December and for the rally to be hard and fast – that’s when the big news came out of Europe.
• I’ve also included a chart of RadioShack (not a great day for that stock).

 

Chart of the Day

JPY/USD (Source: Bloomberg)

RadioShambles (Source: Bloomberg)

 

 

Events

Macro Events:

Update:

• Canada GDP -0.1% vs expected +0.2% … that’s a disappointment
• US Consumer Confidence (for what its worth) came out below expectations
• Taiwanese GDP worse than expected

 

Alerts:

• Eurozone CPI
• South Korea CPI

 

Corporate Events:

Results:

• Fiat [FI IM], Hershey [HSY], Nomura Holdings [8604 JT], Roche [ROG VX],

Dividends:

• Pfizer [PFE],

 

Reading, Links:

Nothing Significant