Watch Series

Americas Watch - July 2018

Welcome to the second half of the year! It’s safe to say the U.S. economy, and the U.S. consumer, is in the best position witnessed in years. The tax breaks and an incredibly tight labor market certainly serve as sources of strength.  The latest retail sales figures were also the strongest in six months.  With this backdrop, the Fed had the confidence to raise rates again in June.  The Fed Funds rate is now 75 bps higher than it was a year ago.

 

However, there is also a sense of unease, with many asking where we go from here.  Trade war rhetoric continues to be in the background, with almost daily announcements of tit-for-tat tariffs.  While the declarations have piqued volatility in equity markets, to date any announced tariffs are expected to only modestly dent U.S. and global economic growth.  However, the posturing could escalate, and the stakes could get higher.  More noise, at least for now, will likely be the norm.

 

Europe Watch - July 2018

 

June was an important month in Europe. Not only did it mark the start of the football World Cup, resulting in some surprising early exits (German, Spanish and Portuguese readers may want to look away), but it also marked a shift in emphasis coming from the European Central Bank (ECB) with president Draghi adopting a more hawkish tone. The ECB’s announcement on the 14th June that it will halt its bond-buying programme by the end of the year ended three years of unconventional and highly expansionary monetary policy that played a crucial role in the euro area’s revival. But it was Mr. Draghi’s more dovish message that interest rates would be held at the current level of 0.0% until next summer at the earliest that will have peaked the interest of investors the most, triggering a surge in European stock markets. For property investors, low interest rates have been key in driving down property yields, feeding through to strong capital growth across many sectors and markets. The announcement comes at a critical juncture in Europe’s recovery as while the underlying momentum remains robust, both internal and external risks have begun to mount amid moderating growth. In this month’s Europe Watch we discuss the potential impact of the tightening of monetary policy on property yields and the performance of Europe’s investment markets.
 

Asia Pacific Watch - July 2018

The hospitality and lodging sector across Asia Pacific recorded strong growth momentum in the past year. Not only have higher-standard hotels in the major cities been attractive investment targets but also investors have widened their focus to second-tier markets and to mid-range accommodation providers in search of higher-yielding opportunities. Initial yields in the hotel sector had compressed to pre-GFC levels by 2016 in most APAC markets and since then have compressed even further. Strong domestic and international visitation fundamentals, both for tourism and for business-related travel, have provided good demand drivers in turn supported by solid economic fundamentals and a benign geopolitical environment within the region. Aside from these strong structural drivers, the region is hosting an increasing number of conferences and congresses as well as several “mega-events” including three successive Olympic Games (Pyeongchang Winter Games 2018, Tokyo Summer Games 2020 and Beijing Winter Games 2022) and a World Rugby Cup (hosted in 12 cities across Japan in 2019) among others. Hotel pricing is high reflecting strong investor demand, still-low interest rate policy and the high likelihood of growing international arrivals. In emerging markets, middle class expansion is encouraging a domestic travel culture expansion, and this benefits certain hotel segments.  Liberalizing gaming/gambling regulations in some markets and more restrictive policies on AirBnB and similar businesses in certain markets are also seen as tailwinds to the sector.
 

Combined Watch Link​