OFFSHORE listed South African property is outperforming domestic listed property and this may persist because of weak macroeconomic factors.
Over the one-year period to end-February, the UBS Global Property Benchmark returned 4.65% as a net total return in dollars. In the same period, South Africa’s listed property index made a negative return of 19.42% in dollars, according to research by Catalyst Fund Managers’ Andrew Cattell.
Rand weakness was a major contributor to that performance, and the South African listed property sector’s rand return was less dramatic, at minus 0.31%.
The currency remains weak against its US counterpart, which favours offshore stocks with currency hedging qualities.
South Africa’s economy has been forecast by the Reserve Bank to grow at 2.5% this year, a paltry figure for an emerging economy.
However, Alternative Real Estate fund manager Maurice Shapiro feels that even though offshore listed property is outshining its local counterpart, investors should think globally.
"We live in a more connected world, and dynamics that affect offshore markets often also affect the South African market. We believe investors need to … ensure their portfolios are more robust and include both offshore and local listed property companies.
"Currently, the main global macro theme affecting markets is the tapering of quantitative easing (QE)," Mr Shapiro says, referring to the US Federal Reserve’s gradual withdrawal of its bond-buying stimulus measures.
The Fed is widely expected to announce another $10bn cut in its monthly bond purchases to $55bn when it concludes its monetary policy meeting today.
"We believe that investors need to be very selective in the companies they choose to invest in," Mr Shapiro says. "Currently we see more value in developed markets as we believe emerging markets have been the major benefactor of QE.
"Specifically, South Africa is among the weakest of emerging markets, which means even good, local listed property companies will have to navigate a rising interest rate environment while gross domestic product growth remains low."
But it would be foolish to completely ignore South African listed property this year. "We still see value in local listed property companies but believe that dual-listed counters such as Capital & Counties or MAS Real Estate should be included in one’s portfolio."
Mr Shapiro likes both counters as they pay very low distributions since investors are looking at them for a total return rather than a yield, which means they should be less susceptible to rate hikes.
Also, both have a significant development pipeline in the UK, and both management teams are engaged with local government to extract value from their assets.
Grindrod Asset Management’s chief investment officer, Ian Anderson, believes some local property counters will perform well in the rest of 2014 but offshore property still has legs.
He has singled out some offshore stocks worth investing in, New Europe Property Investments (Nepi) especially.
Nepi is listed on the JSE, the London Stock Exchange’s Alternative Investment Market and the Bucharest Stock Exchange. It focuses on shopping centres in Eastern Europe and its assets are primarily in Romania.
Mr Anderson has praised Nepi for a few years and says it is a stock South Africans should consider when investing offshore because of its forecast of 15% earnings growth for this year, next year and 2016. Nepi achieved a total return of 56.5% last year.
"Nepi is well run by a South African team based in Romania. It is part of the Resilient stable of property companies. The management of Resilient and Nepi have strategy meetings and share expertise well, even if the businesses are run separately," he says.
The Resilient Property Income Fund owns about 12.7% of Nepi and Resilient CEO Des de Beer owns just under 3%. Nepi CEO Martin Slabbert said after the release of the 2013 financial results recently that Nepi would continue to lead the Romanian market and he now had more time to look at other countries in Eastern Europe.
Citadel Wealth Management investment analyst Harold Strydom says offshore listed property will not realise last year’s stellar returns again this year.
Redefine International, which has assets in the UK, Germany and Australia, topped South Africa’s listed sector with a total return of 118% last year. Capital & Counties Properties, which invests in London office, retail and residential property, returned 69%. "Those kinds of returns were insane. While offshore can still perform well, the numbers last year are unlikely to be repeated. There are macroeconomic risks abroad too," he says.
Article by: www.bdlive.co.za/
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