As demonstrated in previous economic cycles, the Bank of Japan offers no apologies as far as its monetary policy goes, and does anything and everything it deems necessary to maintain the Yen’s position as one of the world’s most stable currencies – disregarding criticisms of its often brutish measures. “Surprise”, unannounced and undisclosed sales of massive amounts of Japanese Yens, government bonds or choice real-estate assets have always been the preferred mode of countering unchecked JPY fluctuations in the past – and this September was no different.
Only this time, BOJ wasn’t the only Asian central bank artificially meddling in the foreign exchange pool.
As QE3 caused major excess liquidity in the US market, investors in search of higher yields have been taking their money to Asia, as is usually the case – the sudden and unbalaned migration of funds causing huge problems for Asia’s currencies and real-estate markets. And while the Bank of Japan, as always, has been flagged as the most aggressive of the lot, Macquarie Bank reports this week that central Asian banks have spent an astounding 18 Billion USD since September, in an attempt to curb the negative effect of US-QE3 on their local economies. Hong-Kong‘s Monetary Authority was the instigator of the latest reported intervention, as the city-state’s central bank sold 603 Million HKD (app. 77.8 Million USD) as late as last week.
Aside from the direct effect on currency appreciation, which has most seriously taken its toll on the Chinese Yuan, Korean Won and the Singapore Dollar – QE3 measures and their resulting international money trails have also caused a direct increase in real-estate equity value, pushing several local Asian economies, already exhibiting unhealthy increases, to unsustainable bubble-like heights – the most obviously dangerous of which, as previously mentioned, being Hong-Kong, the world’s most expensive property market. Prices in Hong-Kong, already far beyond control, have risen an additional 3% since QE3 measures were announced on September 14th, prodding the government into Japanese-like action, and in the process prompting the substantial HKD sale mentioned above.
Singapore, as opposed to the majority of Asia’s top economies, however, isn’t too fussed. The city’s firm belief in its sound economic management and fiscal regulations policy is unwavering, even as home prices, measured by Q3 numbers, reach an all-time historic high of 1,156 SGD per square foot (app. 947 USD). Local opinion seems to be that the latest cooling measures, including but not limited to an additional buyers’ stamp duty, “are working just fine, thank you very much” – with speculators being kept out of the market, people holding on to properties for longer terms, and with overseas buying interest curbed. Data concerning lower foreign percentage of purchases and sub-sale transaction volumes seems to support the theory. And certainly, if the latest figures from successful local real-estate companies such as CapitaLand are anything to go by – 70.8% increase in the gigantic mall developer’s PATMI profits in Q3 – and “Splendid Asia’s Hedge Macro Fund”, run by ex-credit Suisse’s Charlie Chan, who claims 60% returns for the fund this year – Singapore’s economy seems to be doing well.
Asia’s Governments Buy MORE of London and San-Francisco
As covered in previous digests, investors from Asia have been extremely active in the major Western business capitals of the world, slowly but surely buying their way into New-York City, London, and other financial hubs – a trend that shows no sign of stopping, as the investment arms of governments in China and Singapore now enter the fray.
China’s sovereign wealth fund is in talks to buy Deutsche Bank’s headquarters building in London, Winchester House, for 250 million pounds (403 million USD), according to British media reports. The fund is also a shareholder in Songbird Estates, which owns Canary Wharf, home to the global headquarters of banks such as HSBC and Credit Suisse, as well as app. 90,000 employees working in the district. The sovereign wealth fund also owns an 8.86% stake in Thames Water, the UK’s largest water and sewage company.
And in San-Francisco, USA, unconfirmed reports claim that the Government of Singapore Investment Corp. is part of a group taking control of 101 California Street in the city’s financial district. The 30 year-old building is considered to be a trophy asset, and sits well with the GIC’s portfolio strategy, as investments in the U.S. currently account for 33 percent of its portfolio. CBRE reports that completed office sales in San Francisco’s central business district totaled 3.6 billion USD since mid-October.
* One of J.P. Morgan’s property funds lost 80 million USD in a luxury housing project in Dalian, China, as its lender foreclosed on the property, after the asset manager breached loan covenants due to poor sales – as two years of official tightening and cooling measures took its toll on the high-end real-estate sector. There are those who believe that China’s property market has bottomed out, but officials have reiterated that property policy tightening will continue, and that China must not allow speculators back into the market, as rising housing costs could lead to further social unrest.
* More money flows into Japan’s recovering real-estate market, as Australian warehouse operator Goodman Group forms a joint venture with the Abu Dhabi Investment Council, together investing 1 billion USD in industrial property in the land of the rising sun. Simultaneously, the real estate investment management arm of French insurance giant AXA has teamed up with Japanese banking group Sumitomo, and have together raised app. 127 million USD for a Tokyo office investment fund.