THE CASE FOR EMERGING MARKETS

THERE are signs that the property market could experience a robust recovery this year despite political and economic uncertainty, particularly in the run-up to the national elections.

This is according to Paul-Roux de Kock, analytics director at Lightstone, following yesterday’s release of the company’s 2019 Property Forecast.

Lightstone, for the first time, has released a forecast that excludes a large portion of the November and December sales still in the registration process. De Kock said the reason was to dissipate some of the ambiguity causing uncertainty.

He said a preliminary review of last year’s forecast showed that the market was ending the year closer to price growth of 2.9 percent, as opposed to the forecast 3.8 percent.

De Kock said the outcome was mainly because of lower-performing GDP rate, a trend he expected would continue this year, with house price inflation at 3 percent.

“Taking into account current Consumer Price Index (CPI) inflation of 4.5 percent, the mid-value segment experienced lacklustre growth, while the luxury market had a disappointing year, with negative real price growth,” he said.

De Kock said that realistic local forecasts showed that GDP would grow between 0.75 percent and 1.5 percent, and CPI would range between 4 percent to 5.5 percent this year.

He said the Lightstone 2019 Residential Property Forecast was developed according to tested scenarios and fluctuations in the prime lending rate of between 0.5 and one basis points.

“As can be expected, the first quarter of 2019 will continue on a similar slow downward trend within the constrained economic environment,” said De Kock.

He said that when analysing three different scenarios for the property market, as modelled by data scientists at Lightstone, if the market followed the mid-road scenario, it would end the year in a similar position as it did last year.

“On the positive, though, should the economy fundamentally strengthen and significantly boost buyer confidence in the market, it could not only end in a high road scenario but has the potential to break through this forecasted percentage.

“The latter scenario was not explicitly modelled during the forecast but is based on intuitive expectations from a healthy, performing emerging market economy,” said De Kock.

Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, said that if the country were to end the year in the high road scenario, and CPI fell to the lower end of the 4 to 5.5 percent range, as predicted, the country would have exited the cycle of house price decline that has characterised the property market for some time.

“Many choose not to purchase any large assets pre-election, as their decision to invest hinges around the outcome of the election,” said Goslett.

He added, however, that if the election went smoothly, it would bring confidence and certainty back to the market and the economy as a whole and hopefully be the catalyst that created positive strides in the right direction.

“This echoes what many real estate experts predict for the 2019 property market and strengthens the argument that now is the ideal time to purchase property. My best advice for investors and first-time buyers to enter the market as soon as possible, in order to get in before prices begin to climb,” said Goslett.

De Kock said that in the run-up to the national elections uncertainty would most likely increase in the property market.

He added that the debate over land reform was expected to continue to influence buyer confidence in the residential property sector, in particular.

However, De Kock said there were early indications based on the data that the property industry could experience a robust recovery this year. THE FALLOUT from the US-China trade war and other uncertainties continues to weigh on investor sentiment for emerging markets.

But we don’t think the trade spat or some other issues, which we perceive to be short-term in nature, should cloud investors’ long-term view of the asset class.

We continue to see evidence of some positive emerging-market fundamentals that supports our medium- to long-term optimism.

Here are three considerations we think investors are missing when it comes to emerging markets:

1. Crisis-level valuations aren’t reflecting continued underlying resilience in emerging markets.

Geopolitical tensions between the US and China have contributed to a decline in emerging-market stocks, driving valuations to near-crisis levels. However, for us that brings attractive potential opportunities, because we don’t see most emerging-market economies in crisis situations. We think the pull-back we’ve seen in emerging-market equities in recent months presents some attractive medium- to long-term opportunities.

Although economic growth overall was perhaps not as strong as had been expected at the start of the year, in 2018 emerging markets still outpaced developed markets. This trend is expected to continue in 2019, with the International Monetary Fund (IMF) forecasting 2019 gross domestic product (GDP) growth in emerging markets at

4.5 percent versus 2 percent in developed markets.

2. The corporate environment looks supportive.

Despite weaker currencies in emerging markets, corporate earnings growth in US dollar terms was positive in 2018 and looks sustainable to us, so we think cheaper valuations could attract long-term, value-oriented investors to companies that are trading at a discount.

Against this brighter backdrop, we’ve seen an improvement in corporate governance, with better transparency between company stakeholders and decision-makers. We think this creates a supportive environment for shareholders.

3. Consumerism and technology are the engine of emerging-market growth.

Although we saw some headwinds for emerging markets last year, in our view they obscured the bigger picture – some emerging-market companies are now world leaders in the areas of financials, technology and in the production of many consumer goods.

Emerging markets in many cases have been able to adopt new technologies at a fast rate because there are no legacy systems that need to be replaced or integrated first.

We are confident that technology will remain a primary driver in emerging markets, whether manifested through world-leading semiconductor manufacturing, e-commerce or other areas.

Consumerism in emerging markets should help drive growth in many regions. Growing middle-class populations and increasing affluence – the premiumisation of the market – continue to spur demand for highend products available in emerging markets. In our view, companies with superior products should see sustainable growth in the years to come.

Chetan Sehgal is a senior managing director and director of portfolio management for Franklin Templeton Emerging Markets Equity.