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Global Macro Investment Ideas

Global Macro Investment Ideas

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Published by Jan Kaska
July edition contains: 1)GERMAN PROPERTY MARKET Finding income in one the cheapest property markets in the world. 2) IS SURGING EUR A SIGN OF STRENGTH OR WEAKNESS? Euro may have found recent strength for the wrong reasons. 3) CREATING EMERGING MARKETS BOND PORTFOLIO Introduction of asset class that adds yield and reduces volatility 4) MORTGAGE RATES IN THE US HAVE FALLEN TO THE LOWEST ON RECORD Despite that, people are having hard times to refinance or purchase new homes. 5) ROBUST TURKISH GROWTH We think exposure to local equities offers more value the Turkish currency.
July edition contains: 1)GERMAN PROPERTY MARKET Finding income in one the cheapest property markets in the world. 2) IS SURGING EUR A SIGN OF STRENGTH OR WEAKNESS? Euro may have found recent strength for the wrong reasons. 3) CREATING EMERGING MARKETS BOND PORTFOLIO Introduction of asset class that adds yield and reduces volatility 4) MORTGAGE RATES IN THE US HAVE FALLEN TO THE LOWEST ON RECORD Despite that, people are having hard times to refinance or purchase new homes. 5) ROBUST TURKISH GROWTH We think exposure to local equities offers more value the Turkish currency.

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Published by: Jan Kaska on Aug 18, 2010
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01/01/2014

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©
ATWEL International, s.r.o. www.atwel.com Page 1
Current edition contains:
 
1
Finding income in one the cheapest property markets in the world.2
Euro may have found recent strength for the wrong reasons. 3
Introduction of asset class that adds yield and reduces volatility4
Despite that, people are having hard times to refinance or purchase new homes. 5
We think exposure to local equities offers more value the Turkish currency. 
GLOBAL MACRO STRATEGYfor absolute returns
In case you were interested in subscribing to our
newsletter
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.Afterwards, if you decide to continue following us, annual rate is USD 390 per year.
 
©
ATWEL International, s.r.o. www.atwel.com Page 2
1)
 
GERMAN PROPERTY MARKET
Looking at property markets in Ireland, England, US, Spain, or Australia, one has to think that Germans live veryboring lives. Prices of homes in Germany have been nowhere close to roller coaster of its neighbors. According to theEconomist, prices of homes in Germany have been actually falling over past seven years. Since 2003, house prices fell19% in nominal terms and about 24% in real terms. That stands in comparison with markets in Spain and Britain,where the house prices increased roughly 50% in nominal terms and 20% in real terms. Applying a different metric,prices of home against average incomes also fell in Germany by about 20%, while in Spain it went up by 20%. Datafrom also reveal that by the end of the last year, renting prices implied 15% undervaluation of the German propertymarket (leaving Spanish, Australian, and Hong Kong market most overvalued ones by as much as 50%).German property market has another distinguishing feature. Half of Germans rent rather than own. That must be ashocking statistics to many Irish or Spaniards where rate of ownership reaches 80%. German property market is thusa lot about renting and rent yield.Our investment idea is quite simple. First, one should capture the undervaluation by investing into property REITsthat pay out most of the rental income in recurring dividends. Second, with general house price increases inGermany, rising NAV of the REITs should translate into further capital gains. Why should German houses gain onvalue? It is as simple as the Eurozone being trapped in a two speed environment and current rates and 10y bondyields are simply too low for Germany, having a tendency to fuel economic overheating and asset bubbles.Recently, we ran across a German company called Gagfah. It is the largest listed German REIT with a well diversifiedportfolio of housing units, most of them being spread across 20 largest German cities. 60% of the company is held byFortress Investment Group, a US based hedge fund. Given its effective control over company, the policy is set tomaximize return on its investment. The company runs a high dividend policy, providing almost 13% yield. Thecompany distributes almost entire funds from operations in quarterly dividends.We look for an ideal
entry point at around €5.
60 with stop-loss at 5.05. We target at least
€7.50 + received dividends.
 If you wish to track data from German property market more closely, we suggest following sources:http://www.hypoport.com/hpx_mean_en.html; http://www.globalpropertyguide.com/Europe/Germany 
 
©
ATWEL International, s.r.o. www.atwel.com Page 3
Aside from short-term tailwinds like strength of German economy boosted by weak Euro and very cheap housingbased on rent prices, we think it is fair to mention also the longer-term tailwinds. According to OECD study from2005 (OECD Economic Outlook 78), demographic developments, over and above their influence through realdisposable incomes also influence housing demand. In particular, low rates of net migration, increases in the averagesize of households and decreases in population shares of cohorts of individuals in their thirties diminish housingdemand by decreasing the share of the population of household formation. In several countries (including Ireland,Spain, Australia, the United Kingdom, the Netherlands and Norway) the high shares of such households in the totalpopulation since the mid-1990s have been associated with large increases in real house prices. By contrast, inGermany and Japan, house price declines are associated with a low share of such households in the overallpopulation. And as much as we know about German demographic curve, things do not look too rosy. Yet we believethat inappropriately easy monetary policy set for strong Germany can prove too strong for aging Germany at least inthe short term.

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