Do Not Believe What The Newspapers Tell You: London Is Not In A Bubble. Singapore, Hong Kong and Iskandar Are. New York Is The Most Attractive!

My parents often tell me not to trust what I read on the internet. I agree with them. But the papers sometimes give us even greater misinformation than the internet. Newspapers get their revenue from ads and not so much from your subscription! The biggest contributors to their ads often have a say on what gets published! If the property developers often advertise their new launches on the papers, the financial institutions advertise their new fangled products, the papers will be very restrained in making negative comments on topics concerning the products their clients are selling!

On 12 Sep, Thur, the Business Times ran a full section on the property market. Some articles were good, like the article "On the Fringe of the City" and "Buying Landed Is Like Buying Art". Others, such as "Private Home Markets on Sustainable Path", "Outlook Firm for Malaysian Market", "Iskandar Malaysia Comes to Life" were written by the research team of major property firms or journalists who fail to provide quantitative data but merely quote from analysts in the property firms. It is difficult for an analyst to be objective when his salary is paid by the amount of sales his team makes.

"The Expense of London's Boom" is an article about the UK property bubble. I bet that it has scared off a lot of people from buying UK properties. I'm glad the articles came out because I'm in the process of securing more properties there.

I've quickly devised a proprietary model that predicts which cities have the biggest value, which ones are merely a HOLD, neither BUY nor SELL, and which ones are clearly in a bubble territory. I used factors like price to income ratio, nominal GDP growth (because the faster the income grows, the tenants can pay higher rents and buyers can pay higher prices), demand and supply dynamics.

US cities like Phoenix Arizona, Houston Texas, Orlando Florida, New York emerged as runaway winners. Surprisingly, cities like Ho Chi Minh City, Seoul, Brisbane, Adelaide, Petaling Jaya, KL, Toronto, London and Manila came up tops as well.

Tokyo, Jakarta, Bangkok, Guangzhou, Shanghai, Hong Kong, Perth, Yangon, Beijing, Shenzhen and yes your favourite Singapore are in the HOLD category, which means that there may be room to rise further but they are dangerously in the bubble category.

Cities like Makati, Taipei, JB, Suarabya, Hangzhou are in the SELL category. Many of these cities have a deadly combination of high prices relative to median income, oversupply and moderating GDP growth.

US cities are in the sweetest spot. They are at the most affordable in decades and the government is encouraging people to buy more. Building activity is still falling as the consolidation of builders continue.

Ahhhh... now for London. If you think London's 13x price to income ratio is high, and the gross yield of 4 to 5% is low, why then are you bullish on Singapore? It's price to income is 21x, and gross yield is 3 - 4%? You see, London's price to income may not be as low as NYC's 9x, but it has a severe shortage of properties. For the next decade, London's population will probably grow between 80 - 100k per annum. it needs about 30 - 35k of net new homes built per year, but last year, it achieved only 18 - 20k. The next three years will see between 20 - 25k built. London is the only city with the price to income ratio above double digits. The other cities are well below, but their GDP growths are also below that of London's. London has at least 30% of price growth some form of concern is warranted. But let me explain to you, even if you curb property prices in London, the fundamental problem is the lack of supply and if ownership is curbed, rents will rise as renters are forced to continue to instead of buy.

If you believe that London and US cities are too far away, then do consider Manila, KL, Ho Chi Minh and Australian cities. I am extremely risk averse when it comes to investing and if I do not understand the language or believe there is a lack of transparency, I'd always settle for developed countries because the ownership structure and landlord rights are strong. However, Australia has a capital gains tax which I detest, and also a restriction of foreigners to buying only uncompleted properties.

My advice to anyone investing in properties: figuring out demand and supply is extremely important. Price rise without yields is like investing in art and banking on The Greater Fool Theory. Taxes can eat away your returns too so try to avoid countries that have high capital gains and income taxes.

Be Greedy When Others Are Fearful: Start To Dollar Cost Into Russian and Chinese Equities

In 2009, after the biggest plunge of stocks that the world has ever seen since WWII, nobody believed in stocks anymore, especially EM stocks because the MSCI EM fell by over 60% from the peak in Nov 2007 to the bottom in Mar 2009. 2009 turned out to be one of the best year for MSCI EM as it registered over 150% of return that year. In 2010, confidence slowly returned to stocks but many were still sceptical, MSCI EM continued their ascent. By 2011, every neighbour and her dog was into MSCI EM. It proved to be the peak. Till today, MSCI EM is around 18% below the peak in May 2011. The four biggest components of MSCI EM are in order of China, India, Brazil and Russia. That's right, it's the now infamous BRIC countries. Other peripherals like Turkey and South Africa also account for a sizeable weight but still pale in comparison to the Great BRIC.

The MSCI AXJ peaked in Nov 2010, six months earlier than its EM counterpart. That was because China, which peaked at that time, was the runaway heaviest weight in the index. It is now around 11% below the peak.

The HSCEI also peaked in Nov 2010 and is now 26% below the peak. It has been in bear territory for almost three years. the SHCOMP peaked in Aug 2009 and is today some 34% below the peak. China is the biggest culprit because SENSEX, the second biggest component of the MSCI AXJ remained sideways since May 2010. SHCOMP's decline was due to the misguided policy of the Chinese government, using central command policies that are not market driven to pump prime the economy. The order to increase credit in late 2008 resulted in a lot of misallocated resources, and widespread corruption. Today, China is in danger of facing a credit bubble much like what the rest of Asia went through in 1997 and the western world went through in 2008.

However, today, the SHCOMP and HSCEI's valuations are at record lows, whether you look at PE or Price to Book. The technicals are turning positive too. What is needed now is catalyst to boost the index. furthermore, I detect a peak in pessimism about EM stocks. Be Greedy When Others Are Fearful. It is time to dollar cost into Chinese equities.

The MICEX Index peaked in Apr 2011 and is today 22% below the peak. It too is bottoming up. Valuations of Russian stocks are even cheaper, at around 5 - 6x PE.

I say it again, "Be Greedy When Others Are Fearful.... Be Fearful When Others Are Greedy."