‘When China sneezes, the world catches a cold’ – the unfolding of recent events has proven that true; but pockets of opportunities still exist if you know where to look.
Text by Jan Yong
2016 started on panic mode with a Chinese stock market crash followed by falls in global stock markets, wiping off an estimated USD2.6 trillion from global markets in a matter of four days. Such is China’s impact on world markets that whatever it does is being watched closely and analysed to death. After all, China has been the engine of the world’s growth for the last 10 years. A slowing economy in China means less money for everyone, hence less consumption especially high end and big ticket items including real estate. An analyst has even pointed out the crash could spell the end of a huge property-based debt-fuelled boom in China.
That aside, at the time of writing, the markets have stabilised slightly after China strengthened its currency, alleviating fears of further Yuan devaluations. A Yuan devaluation would trigger competitive devaluations among its trading partners; it is a good and bad thing. Good for China’s exports which will be more competitive but bad for its asset values. It may trigger more outflows of money from China. Its trading partners would similarly embark on competitive devaluations to compete with China, hence lower asset values across the board all over the region.
US interest rate hike
Amid more US interest rate hikes in 2016, Hong Kong and Singapore, both economies strongly tied to the USD, will see heightened interest rates as well which will result in less demand for property. In Hong Kong’s case, however, strong take-up from China especially in the office segment will counterbalance the lesser demand from locals. Apart from more money flowing back to the US, thus strengthening the USD, an almighty US will eventually find that its exports become less competitive, hence triggering a slowdown there as well.
More money from US will also go in search of higher yields and most of these will end up in Asia – yet again. The biggest beneficiaries? Markets that are opening up and making an attempt at transparency in its real estate laws – India, Vietnam, Cambodia, Japan, Malaysia and the Philippines are those that immediately come to mind.
It’s a cycle that we have all seen before – stockmarket and currency gyrations are the “new normal” – but history has shown that after each crash, downturn, slowdown, whatever you name it, what emerges thereafter is something better, improved environments and higher values – usually.
Oil at USD10?
Lower crude oil prices is also a good and bad thing – good for China, India, Japan, the Philippines, Singapore, Thailand and all those countries which are net oil importers but bad for Malaysia and Indonesia, among the biggest net oil exporters in Asia. At last look, crude oil price has plummeted to its lowest level in 12 years – at USD32.10 per barrel. Clearly, there’s an oversupply of oil globally and with sanctions lifted in Iran, the Iranians may join in the fray to further reduce oil price.
The consensus is that it would range between USD20 – USD40 in 2016, with some even predicting it could plunge to as low as USD10 per barrel, lower than the cost of production! If the latter happens (and I would not dismiss that), expect big oil-producing countries like Saudi Arabia, Russia, Venezuela and Malaysia to suffer as it runs out of oil revenue. To make matters worse, OPEC has reportedly predicted that the price won’t go back above USD100 per barrel until 2040.
What this means is that now is the time to keep a watch out for bargain assets in oil-producing countries, especially those whose currencies have taken a battering. Yes, as an investor, you have to be like a vulture; when you can see the bottom of the barrel (pun intended), swoop in and grab as many choice assets as possible. You will definitely reap massive rewards when the upturn comes – unless World War III kicks in, at which point of time, you would need to restructure your portfolio to increase weightage on big weapon-producing countries, North Korea excepted.
Non-traditional assets (NTA)
Speaking of non-traditional asset classes, many have touted affordable or low-cost properties as the best type of property to develop during uncertain times. True, whatever the economic situation, people still need a roof over their heads, and household formations still continue and may even increase during times of economic difficulty. Other NTAs include warehousing and storage (logistics) due to the ascendancy of e-commerce; student housing and educational institutions (young people still need to be educated away from their homes); tourism and hospitality (budget airlines make it possible for everyone to fly and exposure to foreign culture make people want to travel); medical facilities (hospitals are in demand due to ageing populations worldwide while cosmetic surgeries are seeing repeated renewals in demand, economic downturns notwithstanding) and surprise, retail. Apparently, more developers are keen on becoming retailers and F&B operators themselves, so expect more joint ventures and franchise arrangements in 2016.
Amid these uncertainties, government legislations will play a bigger role to steer countries out of the slowdown. But not all government policies are good, nor their timing right. Even the best governments get it wrong sometimes.
Conclusion: Will there be a rebound soon or will things worsen to the point that we are standing at the brink of another Great Financial Crisis? Only time will tell. Meanwhile, proceed like a vulture and be ready to swoop up any good deals. There are plenty around if you know where to look – local knowledge and contacts come in very handy now. So, take up the phone and call your long-lost buddy in university who’s now the CEO of a real estate agency in an emerging country.