IPF’s push offshore is a sign of hard SA times

By the end of 2021, Investec Property Fund (IPF) could have about half its assets offshore.

The company just announced that it has increased its European exposure through buying the shares it didn’t already own in a property-focused logistics business platform. European logistics assets are quite enticing for IPF because they promise double-digit returns each year over the next five.

IPF would invest €191m (about R3.1bn) through its wholly owned subsidiary Investec Property Fund Offshore Investments, which owns 42.9% of the platform, growing the stake to 75%. A new equity partner will buy the remaining 25% stake in the platform.

After the transaction, its offshore exposure will be 30% of gross assets on a reported basis. This includes an investment in Australia.

IPF said in January that while it isn’t turning its back on SA, the company is likely to buy only offshore assets in 2020. Locally, it will sell older assets and, where appropriate, make upgrades to encourage tenants to sign new leases.

SA commercial property is under pressure while landlords battle with rising electricity and other administered costs. Tenants are reluctant to accept rental increases, with some retailers wanting to rent less space. Property companies do not expect meaningful economic growth to return to the country this year — or the next.

As a result, the likes of IPF are buying more assets abroad. At least 45% of the exposure of property companies listed on the JSE is offshore. This could rise to 50% in 2021, and IPF could be part of that push as it expands into Europe.

FOOD PRICES IN CHINA

Food prices are soaring in China. Stockpiling has now shifted from surgical masks to all kinds of groceries. Even without the hoarding, food supply has suffered from disruptions because of the deadly coronavirus. Food prices rose by more than a fifth in January. Overall inflation is at 5.4%, the fastest pace in eight years.

Pork prices provide an unofficial measure of future inflation in China, the world’s largest consumer of the meat. Before coronavirus, African swine fever had already squeezed supply. In January, prices rose 116% to just shy of a record high. A combination of prolonged business closures, lockdowns and factory suspensions only tightens the supply chain. Pork prices should stay on an upward trend.

All this has been bad news for restaurants, already hit by a sharp drop-off of visitors. Share prices of local KFC operator Yum China and hot-pot restaurant chain Haidilao are down about 15% since mid-January. Shares in the latter’s rival, Xiabuxiabu, are down more than 30%. Operating profit margins, already falling for the two local chains since 2017, could slide even further.

For others, a pig shortage is bullish. Shares of Chinese pork producers such as Muyuan Foodstuff and Jiangxi Zhengbang have jumped as much as 160% in the past year and trade near historical highs. Even so, there is more room to run.

The case for staying invested in pig producers remains strong. Food stocks, usually a defensive choice, have become useful inflation hedges. Amid an uncertain outlook in China, investors wary of risk have few other options left. /©