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With strong interest among European and Middle Eastern investors, an initial $300 million is being taregetted for the Hong Kong launch, says Carlo Venes, regional chief marketing officer at ING Investment Management. Venes says the fund has sufficient capacity for further expansion in the next six to 12 months.
The fund will be managed by portfolio manager Justin Pica. Prior to joining ING in 2003, Pica was a real estate securities analyst at the Commonwealth Bank of Australia and real estate portfolio analyst at AXA in Australia. Pica will work in a team of five that includes Justin Blaess, director for real estate, and Sanjay Kumar, a dealer and analyst based in Hong Kong.
The fundÆs portfolio has a total return mandate and is modelled after the FTSE EPRA/NAREIT (European Public Real Estate Association/National Association of Real Estate Investment Trusts) Asia Index. The index currently has 79 constituents with 37.2% allocation in Hong Kong, 28.2% in Japan, 28.3% in Australia, 6.1% in Singapore and 0.2% in New Zealand. On a sector breakdown, 16.7% of the stocks are invested in retail, 3.7% residential, 10.3% office-related, 3.7 industrial, with the remaining 65.3% classified as diversified holdings.
As volatility increases in developed markets globally, an emerging trend among international investors is to relocate capital into higher yielding opportunities in Asia. Asian real estate, while already a diversified asset class on its own, offers investors an opportunity to take a view on rising Asian currencies, such as the Chinese renminbi, Malaysian ringgit and Philippine peso.
Pica says he is not restrained by the benchmark. The portfolio will be invested in real estate equities and listed Reits. There are currently 805 stocks in the broadly defined Asia-Pacific real estate universe, with a total market capitalisation of $637.2 billion currently. The stocks in the FTSE EPRA/NAREIT Asia index are currently valued at a total market cap of $341 billion.
The fund can invest up to 30% of its net asset value in a stock, with a 20% overweight in a single country relative to the benchmark. It can hold 10% in cash in times of volatility.
Asia-Pacific conglomerates -- such as JapanÆs Mitsubishi Estate, Hong KongÆs Sun Hung Kai, AustraliaÆs Westfield and SingaporeÆs CapitaLand -- made up around 44% of listed real estate securities globally as of December 2007. According to FTSE data, Asian real estate provided a 14.8% return in 2007, compared to -24.5% in Europe and -14.9 in North America.
Adjusting for subprimeÆs impact, Asia delivered a 30.8% return in the past five years, against EuropeÆs 25% and 19.3% in North America. Pica reckons this trend, where the Asian markets outperform the developed markets, will continue over the longer term.
With liquidity and real interest rates as key drivers, Pica casts a bullish outlook on Hong KongÆs real estate stocks across the office, retail and residential sectors amidst healthy rental yield gains.
In China, he notes credit-tightening measures by the government have not yet impeded the medium- to long-term growth fundamentals, while property developers are increasingly seeking good value opportunities in tier-two cities, in addition to benefitting from the rising wealth effect in tier-one office and residential space.
In Malaysia and the Philippines, Pica says the improving economic conditions have led to attractive opportunities in the two countries; especially as valuation currently remains at reasonable levels. Pica cites the two countries as examples where investors might benefit from strong Asian currency gains.
In Singapore, he notes investors might have over-reacted in a Reit sell-off. He says price levels have been significantly reduced in the sector and good valued opportunities can now be found. Elsewhere in emerging Asia, Pica says the outlook is uncertain for Taiwan and Vietnam because of a lack of market access.
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