In January I highlighted the underperformance of the North America listed Real Estate Sector in 2017 but that it still didn’t offer great value – however with interest rates set to move higher in 2018 I looked forward to some interesting opportunities. Well, be careful what you wish for! By early February markets were in turmoil as US inflation finally reared its head, compounded by the Trump tax reform and a new Fed Chair who may, at least for now, have withdrawn the ‘Fed Put’.
Subsequently general equity markets have recovered, partly helped by volumes of self-fulfilling market commentary! The most appealing argument being that current technology revolution is radically improving productivity and will ease the pressure on employment markets and wages. The deflationary pressure of technological change has been with us for some time, but no one has any idea to what extent technology will help mitigate the next US inflation and interest rate cycle.
However the Global Real Estate sector has remained beached, with the Americas showing a total return of –10% ytd in Sterling. Bond yield are rising, and more importantly real yields are rising – the big question is whether the monetary authorities will deflate the QE bubble slowly or will be forced to act more quickly?