Coutts Asia CIO bearish on Singapore property

Investors appear to be “in denial” about the risks over residential property in Hong Kong and Singapore and that a slowdown in purchases will mean lower prices, private bank Coutts’ chief investment officer for Asia and the Middle East said today (June 3).

“You get that fuzzy period when everyone tells you everything is fine until the point when the bank tells you (that) you must sell or you face a cash-flow problem,” Mr Gary Dugan told the Reuters Wealth Management Summit in Singapore.

“That new price point could be dramatically below where we are.”

Mr Dugan is bearish on residential property in Hong Kong and Singapore, an asset class hugely popular among rich Asians, and noted that the fall in prices has already begun in Asian real estate investment trusts (REITs).

REITS dropped sharply in value last week.

“People realise we have seen the low point in interest rates and therefore if I go out and borrow money today on a flexible rate, I could see the cost of that loan go up by a 100 basis points or 200 basis points over the course of the next one to two years,” Mr Dugan said.

JAPAN RISING

Mr Dugan also said that Japanese stocks are attractive as the economy recovers after two decades in the doldrums and investors should not be alarmed by the sell-off over the past week.

“If you look at the underlying patterns of most things that you are going to worry about as a medium-term investor in Japan… there’s nothing that breaks the back of that positive story,” Mr Dugan said.

Rising inflation is breathing life into the economy, he said, plus business confidence and industrial production levels are also stronger.

The Nikkei share average tumbled to a nearly six-week low today as sharp declines in US stocks dampened fragile sentiment in Japanese equities that have now fallen 15.5 per cent from a 5-1/2 year peak hit last month.

Mr Dugan, however, reiterated his bank’s positive views on Japan, noting there was widespread support for the reforms promised by Prime Minister Shinzo Abe.

Coutts, the private banking arm of Royal Bank of Scotland Group PLC, did not give a target for the Nikkei stock index.

Japanese firms are expected to report earnings per share (EPS) growth of 68 per cent this year and 18 per cent in 2014, much faster than the 11 per cent and 8 per cent rises forecast respectively for US stocks, Coutts said in a note to clients last week, citing estimates by Goldman Sachs.

Source : Today – 3 June 2013

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