Although the region’s export-oriented nature means the Asian economy will not be totally counter-cyclical to the rest of the world, the diversity between different markets in the region does provide investors with useful scope to spread risks. The last five years have seen rapidly growing interest from institutional property funds targeting Asia. Investors from the US, UK and Germany have all entered the market. Japan, China, Singapore and Hong Kong have so far been the most popular locations.
Expanding the range of permitted investment markets increases access to stock, and also increases the range of prospective returns on offer. The inclusion of Asia in portfolio selection can potentially open up a risk-return spectrum that has previously not been available. This means new risks, but when properly understood and managed, the risk-return profiles of different markets can be played off against one another to maximise returns for a given level of risk. The increasing international expansion of advisory services, ranging from fund management to specialist property services, legal services and taxation advice, has also made cross-border investment much more transparent in recent years.
Although there is still a significant gap between Asia and the western world in terms of information coverage, the quality of information available has improved markedly over the past decade. Increasing international investment will consolidate this process, as investors expect best practice to be applied outside their domestic markets, using firms with solid ‘on the ground’ experience in each market. Looking ahead, there is certainly a greater economic risk associated with Asian countries, due to the credit crisis and the increasing risk of a recession in the US.
This has generated plenty of discussion among investors about the likely impact on Asia if the global economic outlook continues to worsen. Our view is that the Asian economy has not de-coupled from the rest of the world, and that India and China alone cannot generate enough growth momentum to completely shelter Asia from a global slowdown. However, the uncertainty in the US and Europe, due to the credit crisis, may actually benefit Asia in the short term. In terms of property investment, this is a view being increasingly echoed by property professionals worldwide.
John Su, director of investment strategy and research in Asia, Goodman Property Investors.
