Investors Try to Make Sense Out of Confusing Global Economy

A recent report from LaSalle Investment Management found that the varying speeds of global economic recovery have made it difficult for real estate investors to develop strategies for 2011. In the UK, the United States and France, for example, the economies have only shown a modest rebound. The Asia Pacific, on the other hand, has experienced strong growth.

“Investment performance in the rapidly growing countries will be volatile, due to the waves of liquidity that wash over these less mature markets,” said Jacques Gordon, who is the Global Strategist at LaSalle, in a recent Reuters article. “Growth strategies that take advantage of rapid urbanization and a burgeoning middle class will be most successful.”

Gordon went on to add that selective residential developments in China’s second-tier cities are likely to provide the best opportunities. In those areas that are experiencing low growth, such as the United States, Japan and the United Kingdom, LaSalle predicts that real estate investments could receive a boost from the low interest rates as well as the increased flow of equity capital and debt.

“While investor appetite for risk starts to grow once again, value-add and opportunistic investing will be more attractive in the States, with core investing showing the most signs for improvement,” said William Maher, who is the head of U.S. strategy for LaSalle.

Maher went on to forecast that that the United States transaction volume is likely to reach between $150 billion and $200 billion by the end of next year. The most attractive core opportunities are likely to be in the healthcare, technology and entertainment sectors, which could potentially outpace the national average. In Europe, on the other hand, those who are seeking higher returns should set their sights upon those banks that are taking steps to reduce their exposure to property. Further recommendations include focusing on central London and retail offices while avoiding those regions that are outside of the UK’s South East. Offices in France should also provide good returns, as well as retail and logistics and France and Germany.

Global Banks Make Predictions for 2011

A recent article in the Vancouver Sun showcased the opinions of many of the largest financial institutions in the world in regard to their predictions for the economy next year. Here is a look at what some of them had to say.

UBS

UBS maintains that the world economy is on track toward a recovery, citing the fact that it grew an estimated 4.1 percent in 2010. The bank predicts that global growth will slow down a bit in 2011 to 3.7% and then pick up slightly to 3.8% in 2012, with Japan having the slowest growth rate in 2011. The bank also predicts a slow down in emerging economies.

“The lingering constraints of the credit crisis and balance sheet repair, combined with a less-pronounced inventory contribution, suggest that the world economy is unlikely to reduce much of the spare capacity built up during the recession,” said the bank in the article.

Bank of America-Merrill Lynch

Bank of America-Merrill Lynch states that the gap between advanced and emerging economies will be a significant factor next year.

“While economic fundamentals are positive in most emerging markets, banking and real estate crises have created deep and persistent output gaps in the Big Three – the U.S., Japan and Europe. We expect trend-like growth in most economies in the year ahead. Such growth is essential to avoiding overheating in the emerging markets, but it means a very slow healing process in the Big Three,” the bank said in the article.

Due to the gap, the bank predicts an ongoing policy split. Furthermore, the bank predicts that the unbalanced global economy will create several risks including trade and currency tensions, premature policy exit and commodity and asset market bubbles.

Deutsche Bank

Deutsche Bank predicts that the global economy will bounce back and predicts a growth of nearly 4% in 2011, with slightly faster growth in 2010.

“This overall pattern combines two very different pictures: one for economies that have been hit hard by the effects of deflating real estate bubbles and sovereign debt crises and a second for those that suffered more modestly and indirectly from spillovers as global activity declined.”

The bank also predicted that global inflation will pick up modestly, but will continue to be at or below average in Europe, the United States and Japan while remaining elevated in emerging markets. Overall, the bank predicts a 6% global inflation rate in these markets.

Morgan Stanley

Morgan Stanley believes external imbalances are shrinking as surplus countries engage in the transition from being export-led to consumption-led while deficit countries tend to move in the other direction.

“Reflation: During the rebalancing process, the G3 central banks will likely keep policy very expansionary, which should support the ongoing reflation of the global economy and financial markets. Many emerging market central banks will likely raise rates, but won’t be overly aggressive.”

The bank also foresees reconciliation as governments address the needs of bondholders versus stakeholders.