Burkhard Varnholt, chief investment officer of Bank Sarasin, said that Singapore real estate is “exceptionally attractive” from a yield and capital appreciation perspective.
Dr. Varnholt dismisses fears of a bubble, even with the introduction of new measures in the country to control speculation.
“Even though concern for monetary tightening in Asia is widespread, fundamentally I continue to view markets like Singapore, as exceptionally attractive . . . I think real estate prices can double over the next three to five years and maintain attractive yields,” he said.
“That’s based on comparing property prices in Singapore against global peers, and the expected capital inflow from the rest of Asia into the Singapore market in the next few years.”
According to Dr. Varnholt, the crisis in Greece caused the central bankers from developed markets to become wary of how stimulus is withdrawn.
“The combination of cheap money and strong growth in the east, as well as weakness in the west, with the sustainable recovery in corporate and non-financial earnings and balance sheets – I think those make a powerful case for real assets, for real estate and equities.”
He added that real estate over equities is his preference in Asia “because for the first time in many years, Asian equities have become more expensive than the MSCI World.”
He recommends property funds for Sarasin clients, as single property purchases are “something the clients should do themselves because of the lack of liquidity”.
“Travelling the world, I can’t see a bubble yet and for the foreseeable future in a place like Singapore…which has the quality of life, business friendliness, political and economic stability.”
Although the bank’s ‘roadmap’ for investments differs from that in 2009, when the exposure of its balanced portfolio to emerging markets were high at 55 percent to 60 percent, he remains positive on the prospects for emerging markets.
This year, the allocation has been reduced drastically to around 10 percent, due to concerns on valuation. “We shifted our equity exposure from emerging markets to super-competitive western blue chip companies that benefit from cheap currencies and leverage on the boom in Asia and the emerging markets,” he said, citing firms like Nestle and Coca-Cola.
An ‘extraordinarily’ attractive dividend yielded against sovereign bond and low corporate yields were being paid by these defensive companies.
However, he expects several key risks in the horizon. One is a ‘super’ spike in the prices of commodities spurred by limited resources. The second risk is the ‘ballooning’ money supply growth in China which is likely to prompt more stringent measures.
Another risk is that the global housing market is likely to see more downside, as prices look expensive based on price to rent and price to income ratios in many markets.
Still, Dr. Varnholt considers that the present cycle will remain positive for equities. “The environment is not too hot or too cold. It’s historically one of the best environments for equities,” he said.