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HFF Research Update for July 27, 2015: China, Currencies & REITs

Monday, July 27, 2015

Weekly insights on current research in the commercial real estate industry from HFF Managing Director of Research Jimmy Hinton. View Daily Rates on the HFF website or access the HFF Daily Rates App in iTunes.

Last night (in America) Shanghai and Hong Kong's stock indices contracted by 8 percent and 3 percent, respectively, disrupting the notion China's government had successfully clotted the bleeding suffered in weeks passed.

Analysis of Market Insights and Economic Performance

Global Markets

The reverberation was unilateral. European and domestic stock indices also shed value while global commodity markets, most notably crude, swooned. Dropping for a fifth consecutive day, the forward contract on the price of WTI crude dropped another 1 percent on Monday. Overnight (in Asia) futures look bad again, with Japan's Nikkei index modeling a 1-percent decline at the open in a few hours.

The flight to quality has been strong, with yields on Treasuries down as many approximately 5 bps across the maturity curve. The yield on the 10-year UST is hovering just above 2.20 percent and has declined 20 bps in as many trading sessions. Greece, indeed, was no matter relative to the second largest economy in the world.

Currencies

Many commodity-driven economies are reeling, and in some cases so too are their neighbors. Take Brazil for example. The Brazilian Real has fallen off the table and now mirrors the kind of percentage decline against the USD that neighbors Chile and Columbia have evidenced. 
 
As the below graph illustrates, these currencies’ valuations relative to the USD are down approximately 5-11 percent since the first of June. 
 
Economic Performance Research
 

 

Real Estate

One of the few investments that has performed well through the conjecture is REITs. The FTSE NAREIT index has returned 4.5 percent in July thus far while, more than quadruple Treasuries at 1 percent; commodities are down 10.5 percent in the time period. Goldman Sachs today joins the ranks of iBanks positing the opinion REITs could benefit from the reclassification from Financials into the 11th trading vertical. 

No longer providing dividend yield, investors in “Financials” could relocate capital to REITs, given they must distribute 90 percent of their earnings to shareholders. Is this already happening? Maybe not, Goldman sees only REITs comprise only 1.9 percent of AUM within the 20 largest Income Funds in the country.

Economic Performance Research Continued
 
About Jimmy Hinton

Mr. Hinton serves as Managing Director of HFF, responsible for the firm’s research efforts. Mr. Hinton works with the HFF Jimmy Hintonexecutive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.





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