the role of european emerging market property companies in a portfolio graeme newell university of...
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THE ROLE OF EUROPEAN EMERGING MARKET PROPERTY COMPANIES IN A
PORTFOLIO
GRAEME NEWELLUniversity of Western Sydney
ALEX MOSSMacquarie Securities
STANLEY McGREALUniversity of Ulster
and
KIM NGUYENUniversity of Western Sydney
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INTRODUCTION
Developed property markets
Emerging property markets
European emerging property markets
Previous research*General *Property*European property
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PURPOSE OF PAPER
Nine (9) European emerging property markets
Listed property securities
Risk-adjusted performance
Portfolio diversification
Mixed-asset portfolios
2007-2011
Property investment implications
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GLOBAL COMPETITIVENESS
#33: Estonia #36: Czech Republic #39: Poland
#40: Cyprus #45: Slovenia #46: Portugal
#47: Lithuania #52: Hungary #60: Slovak Republic
#61: Turkey #63: Russia #67: Romania
#71: Bulgaria #77: Croatia #83: Greece
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CORRUPTION PERCEPTION#26: Estonia #27: Slovenia #28: Cyprus
#32: Portugal #41: Poland #46: Lithuania
#50: Hungary #53: Czech Republic #56: Turkey
#69: Romania #73: Bulgaria #78: Greece
#154: Russia
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INSTITUTIONAL GRADE PROPERTY MARKET
#11: Russia (6) #18: Turkey (10) #24: Poland (14)
#25: Greece (15) #30: Portugal (19) #34: Czech Republic (20) #42: Romania (21) #43: Hungary (22) #44: Slovakia (23)
#46: Ukraine (24) #50: Slovenia (26) #53: Bulgaria (27)
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PROPERTY TRANSPARENCY
#19: Portugal (13) #22: Poland (16) #24: Czech Republic (18)
#27: Hungary (19) #29: Greece (21) #30: Slovakia (22)
#31: Russia (Tier 1) (23) #32: Romania (24) #35: Russia (Tier 2) (25)
#36: Turkey (26) #40: Bulgaria (27) #43: Russia (Tier 3) (28)
#46: Ukraine (29) #53: Slovenia (30) #61: Croatia (31)
#70: Kazakhstan (32) #78: Belarus (33)
Transparent: #19-#27 (4) Semi-transparent: #29-#53 (10)
Low-transparency: #61-#78 (3)
• Improvements: 2001-2010
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SECURITISED PROPERTYRussia Poland TurkeyGreece Hungary BulgariaCzech Republic Cyprus PortugalEstonia Latvia
REITs
#13: Turkey #19: Greece #21: Bulgaria
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PROPERTY ACTIVITY: 2010: COUNTRIES
#13: Russia #21: Poland #24: Turkey
#27: Portugal #32: Czech Republic #35: Romania
#36: Ukraine #38: Hungary
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PROPERTY ACTIVITY: 2010: CITIES
PROPERTY ACTIVITY: Q1 2011
#13: Poland #19: Czech Republic #23: Turkey
#26: Ukraine #27: Romania #31: Hungary
#33: Croatia #35: Russia
#15: Moscow
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EMERGING MARKETS: GLOBAL CONTEXT
•Listed property securities
Contribution* developed: 80% * emerging 20%
•Emerging market contribution: regionsAsia: 54% Americas: 15%ME&A: 25% Europe: 5%
•EPRA emerging markets index
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EMERGING MARKETS: EUROPEAN CONTEXT
• Listed property securities
• Developed @ 93% versus emerging @ 7%
• Europe emerging = 1.0% global
• #12: Russia #17: Poland #18: Turkey
• Europe emerging @ EPRA emerging markets index
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METHODOLOGY
•Listed property securities
•European emerging markets (9)Bulgaria Cyprus Czech RepublicGreece Hungary PolandPortugal Russia Turkey
•European developed markets (3)U K France Sweden
•Stocks
•January 2007- April 2011: monthly total returns
•Risk-adjusted performance; portfolio diversification
•Sub-period analysisJanuary 2007-June 2009July 2009-April 2011
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PROFILE: APRIL 2011
Country # of property securities Market cap Rank
Bulgaria 20 £ 0.2 B #5
Cyprus 5 £ 0.1 B #7
Czech Republic 3 £ 0.1 B #7
Greece 8 £ 0.9 B #4
Hungary 3 £ 0.2 B #5
Poland 14 £ 2.4 B #2
Portugal 3 £ 0.1 B #9
Russia 8 £ 6.5 B #1
Turkey 18 £ 2.1 B #3
Europe Emerging 82 £ 12.5 B
UK 146 £ 40.9 B
France 71 £ 50.2 B
Sweden 22 £ 15.4 B
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PROPERTY SECURITIES PERFORMANCE
Country Average annual
return
Annual risk Risk/return
ratioBulgaria -7.74% 17.43% -2.25Cyprus -20.89% 32.59% -1.56Czech Republic -20.64% 28.74% -1.39Greece -20.85% 30.23% -1.45Hungary -6.15% 21.72% -3.53Poland -11.77% 32.53% -2.76Portugal 25.90% 54.36% 2.10Russia -5.79% 47.85% -8.27Turkey 16.68% 27.59% 1.65Europe emerging -2.80% 34.03% -12.16UK -18.52% 29.88% -1.61France -4.54% 24.21% -5.33Sweden -1.79% 32.92% -18.37Europe developed -11.65% 24.22% -2.08
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STOCK PERFORMANCE
Country Average annual
return
Annual risk Risk/return
ratio
Bulgaria -20.43% 40.43% -1.98Cyprus -24.82% 47.47% -1.91Czech Republic -1.70% 29.08% -17.06Greece -23.80% 36.31% -1.53Hungary -0.64% 28.47% -44.41Poland -0.18% 26.38% -142.64Portugal -5.13% 22.24% -4.34Russia -0.65% 34.46% -53.42Turkey 17.27% 33.33% 1.93UK 3.64% 17.46% 4.80France -3.31% 20.06% -6.06Sweden 3.46% 21.69% 6.27
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DIVERSIFICATION: PROPERTY SECURITIES
BULG. CYPR. CZECH GREECE HUNG. POL. PORT. RUSS. TURK. EMERG. DEVEL.
BULG. 1.00
CYPR. 0.45 1.00
CZECH 0.53 0.39 1.00
GREECE 0.35 0.25 0.43 1.00
HUNG. 0.57 0.37 0.53 0.41 1.00
POL. 0.31 0.30 0.45 0.58 0.44 1.00
PORT. 0.22 0.26 0.13 0.08 0.24 -0.04 1.00
RUSS. 0.45 0.27 0.46 0.44 0.35 0.60 0.11 1.00
TURK. 0.52 0.25 0.57 0.52 0.65 0.67 0.10 0.60 1.00
EMERG. 0.50 0.32 0.54 0.58 0.48 0.76 0.10 0.96 0.75 1.00
DEVEL. 0.50 0.30 0.52 0.52 0.40 0.72 -0.06 0.49 0.63 0.63 1.00
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DIVERSIFICATION: STOCKS
BULG. CYPR. CZECH GREECE HUNG. POL. PORT. RUSS. TURK.
BULG. 1.00
CYPR. 0.58 1.00
CZECH 0.69 0.61 1.00
GREECE 0.62 0.88 0.73 1.00
HUNG. 0.67 0.73 0.80 0.76 1.00
POL. 0.65 0.58 0.90 0.70 0.81 1.00
PORT. 0.57 0.71 0.69 0.77 0.72 0.68 1.00
RUSS. 0.64 0.70 0.59 0.61 0.62 0.56 0.59 1.00
TURK. 0.55 0.67 0.72 0.68 0.79 0.76 0.65 0.57 1.00
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PROPERTY/STOCK CORRELATIONS
Bulgaria: 0.70 Cyprus: 0.41Czech Rep.: 0.54 Greece: 0.71Hungary: 0.68 Poland: 0.85Portugal: 0.06 Russia: 0.67Turkey: 0.83
UK: 0.68 France: 0.67Sweden: 0.57
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SUB-PERIOD RETURNS: PROPERTY
Bulgaria: -16.68% 6.01%Cyprus: -16.82% -26.13%Czech Rep.: -26.80% -11.39%Greece: -15.83% -27.22%Hungary: -14.84% 7.14%Poland: -28.65% 17.85%Portugal: 22.61% 30.52%Russia: -29.29% 39.32%Turkey: -1.55% 47.11%Emerging: -21.62% 30.35%
Developed: -33.66% 30.59%
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SUB-PERIOD RISK: PROPERTY
Bulgaria: 20.37% 11.79%Cyprus: 32.92% 32.80%Czech Rep.: 27.64% 30.51%Greece: 33.19% 26.17%Hungary: 25.60% 14.80%Poland: 39.35% 18.27%Portugal: 44.61% 66.45%Russia: 54.24% 36.37%Turkey: 30.46% 22.22%Emerging: 40.41% 21.31%
Developed: 25.04% 18.47%
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SUB-PERIOD RISK: STOCKS
Bulgaria: 47.54% 26.81%Cyprus: 55.07% 35.78%Czech Republic: 33.40% 20.82%Greece: 37.23% 35.89%Hungary: 32.51% 20.86%Poland: 30.79% 16.90%Portugal: 25.75% 16.39%Russia: 41.35% 19.05%Turkey: 38.20% 25.12% UK: 18.38% 14.68%France: 21.53% 16.75%Sweden: 25.46% 13.56%
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SUB-PERIOD PROPERTY/STOCKS CORRELATIONS
Bulgaria: 0.77 0.34 Cyprus: 0.49 0.29Czech Republic: 0.63 0.41 Greece: 0.68 0.79Hungary: 0.78 0.30 Poland: 0.86 0.73Portugal: 0.09 0.03 Russia: 0.70 0.51Turkey: 0.85 0.75 UK: 0.57 0.84 France: 0.61 0.71Sweden: 0.57 0.49 Emerging property/Developed property: 0.66 0.45
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EUROPEAN EMERGING MARKETPROPERTY INVESTMENT IMPLICATIONS
• Size; maturity; significance
• Risk-adjusted returns
• Portfolio diversification
• Sub-period analysis * risk * diversification