Sirius a star for SA hedging
Offshore property stocks are back in favour, accounting for most of the JSE’S top 10 best performers
The share price performance gap between the 50-odd individual stocks that comprise the JSE’S R500bn real estate sector has widened to nearly 50% in the year to date.
Top-performing counter Sirius Real Estate is up 27%, and worst performer Accelerate Property Fund is down 21%.
Besides Germanfocused Sirius, the top 10 best-performing stocks in the year to date include mostly rand hedges, according to Absa Asset Management. These shares include Greenbay Properties, which has exposure to Portugal and Slovenia, and has risen 21%; Polish-focused Globe Trade Centre (15%); Schroder European Real Estate Investment Trust (11.5%); Central and Eastern Europe-focused New Europe Property Investments (Nepi) (11%); and Rockcastle (9%).
This follows last year’s underperformance of foreign stocks, when the share prices of a number of counters dipped into the red on the back of a stronger rand and concerns about how Britain’s decision to exit the EU would play out.
About 20 of the sector’s 50 counters are pure offshore plays, up from only one a decade ago (Liberty International, now known as Intu Properties).
Today almost 50% of the SA listed property sector’s market cap of about R500bn represents offshore real estate portfolios. Keillen Ndlovu, Stanlib head of listed property funds, says these are spread among no fewer than 25 countries — the US, UK, France, Australia, Romania, Poland, Spain, Slovakia, Slovenia, Germany, Portugal, Croatia, Serbia, Macedonia, Cyprus, Montenegro, Morocco, Switzerland, the Czech Republic, Bulgaria, Mauritius, Nigeria, Zambia, Namibia and Ghana.
Ndlovu notes that the sector’s biggest exposure in terms of market cap weighting is to Central and Eastern Europe (CEE) at 15.9%, followed by the UK at 14.8%, other Western European countries at 4.7%, the US at 4.4% and Australia at 4.3%. Exposure to African countries other than SA sits at only 1.5%.
While the rapid growth in the JSE’S bevy of property stocks that generate 100% of their earnings offshore is positive, as it creates more choice for South Africans looking to spread their risk outside the country, it also requires investors to become far more discerning in their stock selection choices.
Craig Smith, head of research at Anchor Stockbrokers, says investing in rand hedge stocks is no longer purely about currency diversification. “Investors need to do their homework to understand the growth prospects and fundamentals relevant to each individual company and country,” he says.
The factors affecting rental and capital values can vary significantly, not only for different subsectors of the real estate market such as offices, retail, warehousing and student housing, but also for different countries, Smith says. “UK prospects, for instance, are very different now from those of Western Europe, the CEE region, Spain or Portugal.”
With share prices of