By Alec Hogg
During a recent presentation here in London, I was introduced to an unusual investment which carries a strong message about winners and losers in the Fourth Industrial Revolution. A dozen years back, Europe’s biggest fund manager Schroders created a unit trust that invests in property exclusively in global cities. The fund has comfortable beaten most alternatives, consistently ranking in the top quartile on performance tables.
When the Schroders research team ranks a city’s relative appeal, the size and growth of the population was important. But not exclusively so. To get included, cities also had to possess excellent infrastructure, top universities and “skilled workers with high disposable incomes”.
Based on these criteria, Europe’s biggest asset manager created a Global Cities Index which it adjusts annually. The index started with an initial database of 160 cities and refined them to a ranking of the 30 most attractive. The top four – Beijing, Shanghai, Shenzhen and Tianjin – are all in China. London is the sole European representative (8th) in the index’s top 10 with all others from the US – New York, Los Angeles, Dallas, Houston and Chicago.
Despite its best efforts, however, this £611m fund has been unable to apply the conclusions of its research. Its portfolio is heavily weighted towards the US (54%) then Japan (10%) with only 7.5% invested in China/Hong Kong. When I asked, the fund manager explained that for outsiders, actually acquiring a slice of the Chinese property pie is a major challenge.
A similar comparison arrived yesterday from estate agents Knight Frank which compiles an index of residential property price growth in the world’s major cities. Its results support those of the Schroders team: All the action is in the Middle Kingdom.
Nanjing, a Chinese city of 8m souls best known globally for Japanese atrocities in 1937, posted residential property price growth of 41.1% last year, the fastest of any city on earth. It leads a dozen metropoles where prices rose at least 20% last year. Chinese cities fill all but two of this elite list with only New Zealand’s Wellington (10th with 23%) and Norway’s Oslo (12th with 21%) preventing a clean sweep. The four Chinese mega cities tagged by Schroders are all there. For all the Brexit woes, London homes enjoyed a respectable 7.5% price increase last year (55th) while Seattle did best of the US cities at 10.8% (34th).
Although no African cities make the Schroders 30 index, three are included in the Knight Frank table ranking 150 global cities. Best of the trio is Cape Town, whose 3.9% price improvement in 2016 puts it in 92nd place. Johannesburg is 109th with a 2.2% price rise, sandwiched between Ljubljana and Zagreb (seriously). Durban is sixth from bottom at position 144 after a 5.1% fall in its home prices last year. Moscow is bottom at minus 15%.
Seeing China’s dominance in an area we can all relate to makes it easier to understand the appeal of Naspers, the one third owner of Hong Kong internet giant TenCent. At the current share price, TenCent is worth R3,000 per Nasper share. The SA stock currently trades below R2 500. And buying Naspers is much easier than trying to buy a house in China.