DO ASIAN PROPERTY COMPANIES ADD VALUE TO INVESTMENT PORTFOLIO?
Kim Hiang LIOW, Alastair ADAIR and Nan SHI, Working paper to be presented at the 21st ARES Meeting,
April 19-22, 2006, Casa Marina Resort, Key West, Florida
Abstract
This study examines the role of Asian property companies with regard to their “value-added” performance
and portfolio diversification benefits in Asian mixed-asset portfolios, as well as in international real estate
securities portfolios from the USA and UK investors’ perspective over 1996-2005. Whilst there is little
evidence of diversification benefits and superior risk-adjusted performance of Asian property companies in
Asian mixed-asset portfolios, diversification into Asian property stocks can provide positive portfolio
implications for the US and UK investors. Thus investing in Asian property stock portfolios rather than
investing in Asian mixed-asset portfolios may be seen to be the more effective diversification strategy over
this period. With the intensification of investment interest in Asian real estate markets as the regional upturn
becomes more evident, this research is timely and has significant implications for ongoing international real
estate investment strategies, particularly for Asian and USA / UK property fund managers.
1.
INTRODUCTION
With the increased significance of Asian property companies as real estate investment vehicles
for institutional investors to obtain property exposures in Asia, this research assesses whether the riskadjusted performance of Asian property companies results in added value to Asian mixed investment
portfolios, as well as in USA and UK real estate securities portfolios.
In an international context, the European Public Real Estate Association (EPRA) has reported
the market capitalization of securitized real estate reached almost US$ 821.3 billion in September 2005.
About 44% of the market is based on the US securities, Asia-Pacific (34.5%), the UK (5.8%) and
continental Europe (12.3%) (EPRA, 2005). The current market size of Asian real estate securities,
relative to equity market and direct real estate market is presented in Table 1.
(Table 1 here)
Diversification benefits of real estate securities have been assessed for the US Real Estate
Investment Trusts (REITs) (NAREIT, 2001) and for Australian Listed Property Trusts (LPTs) (Newell
and Tan, 2003). In the US and Australian context, REITs and LPTs are found to provide significant
portfolio diversification benefits, with increased levels of REITs and LPTs in the respective portfolios
resulting in enhanced risk-adjusted performance and increased terminal wealth. Research on European
property stocks (Newell, 2003) finds that European property stocks deliver superior risk-adjusted
performance over 1993-2002. All the three features reinforce the value-added investment performance
of REITs, LPTs and European property stocks in respective investment portfolios.
Given the significant market share and the highest levels of securitization in Asia-Pacific
markets including Australia, Japan, Hong Kong/China and Singapore, this research on Asian property
companies has significant implications for ongoing international real estate investment strategies,
particularly for the US/UK and Asian portfolio managers. This issue has been further emphasized with
the successful establishment of equivalent REIT vehicles in Japan, Korea, Singapore, Hong Kong and
Taiwan. With the rapid growth of Asian securitized real estate and the potential diversification benefits
of Asian real estate securities, it is essential to assess the roles of Asian property companies within
international investment portfolios. The objectives of this study are:
(a)
To assess the risk-adjusted performance of Asian property companies compared to Asian stocks,
bonds and cash
(b)
To assess whether Asian property companies add value to Asian mixed-asset investment
portfolios
(c)
To assess whether Asian property companies provide increased diversification benefits in
Asian mixed-asset portfolios
(d)
To assess whether diversifying into Asian property stocks provides positive portfolio
implications for Asian, USA and UK investors
To the best of our knowledge, no equivalent research is being done elsewhere regarding Asian
property companies; the only previous related research in this area has focused on individual countries
(e.g. Hong Kong and Singapore) rather than considering the fuller range of Asian countries and the
potential value-adding role of Asian property companies in mixed-asset portfolios and international real
estate portfolios for both local and international investors.
2.
RELATED LITERATURE
The role of real estate in domestic and international real estate portfolios is a rigorously
researched topic in the real estate literature. As the US alone comprises almost 50% of global real estate
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market, the majority of the prior studies were conducted on the US real estate such as REITs or direct
commercial real estate holdings using NCREIF indices. However, an increasing number of studies are
focusing on the real estate securities market in Europe and Asia, which form important parts of a global
real estate investment portfolio.
Markowitz’s (1952) Modern Portfolio Theory (MPT) marks a milestone in the theory of
diversification whereby constituent assets in a portfolio are identified based on their mean returns,
standard deviation of returns and correlation of returns in order to maximize the utility of an investor’s
wealth when subject to uncertainty. Subsequently, Sharpe (1964) and Lintner (1965) propose the use of
a single-index model to substitute Markowitz’s inter-asset correlation coefficient matrix. The MPT has
provided the conceptual framework for the development of Capital Asset Pricing Model (CAPM) which
postulates that the total risk of an investment portfolio may be divided into two components, systematic
risk and non-systematic risk. The total risk of an investment is defined as the total variability of return.
This can be measured statistically by variance or standard deviation. Systematic risk is the portion of
total variability of return caused by factors which simultaneously affect the prices of all marketable
securities. Hence, it is “undiversifiable”. Unsystematic risk is the portion of total risk which is unique to
a firm or industry. As it affects only a particular investment, diversification can reduce the extent of this
type of risk.
Using historical data of REITs in the US, numerous studies have focused on the risk-adjusted
performance of real state securities as well as tested whether they offer superior returns. Earlier studies,
such as Kuhle et al. (1986), Firstenberg et al. (1988) and Sagalyn (1990), conclude that REITs offer
superior returns especially from the late 1970s and mid-1980s. These findings are often interpreted as
evidence that securitized real estate, especially REIT is a particularly good investment that investors
should add to their portfolios. However, studies employing a multifactor pricing model fail to detect any
superior returns. Chan et al.(1990) show that while abnormal returns could be earned using a simple
capital asset pricing model (CAPM) framework, the return evaporates when a multifactor pricing model
is employed. Glascock (1991) finds that market conditions change REIT performance. During up
markets, REITs exhibit higher betas; and during down markets, they have lower betas. However, on
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average, REITs underperform the market on a nominal basis and earn fair returns on a risk-adjusted
basis. Gyourko and Keim (1993) use a dataset that includes not only REITs but also general contractors,
agents, mangers to investigate their risk-return performances. They find that the returns of real estate
related firms are dominated by a strong covariance with the stock market, and suggest that there is no
excess return behavior. Liu et al. (1995), in a critical review of literature on real estate performance,
suggest that any superior real estate performance observed may be an illusion arising from an omission
of certain fundamental factors in the estimates of risk.
The risk-adjusted behavior of securitized real estate outside the US market has also been
studied. In an international setting, Ling and Naranjo (2002), Hamelink and Hoesli (2002) and Bond et
al. (2003) have made consistent observations that there are little abnormal returns to be earned in
international real estate securities. However, substantial variations in real estate returns exist across
different markets and over different periods. A study on European property stocks by Newell (2003)
shows that European property stocks add value to a European investment portfolio over the period
1993-2002. The superior risk-adjusted performance is also evident for six of the 12 specific European
countries examined, including UK, France, Norway, Ireland, Spain and Switzerland. His results are
consistent with the prior work of Newell and Tan (2003) on Australian Listed Property Trusts (LPTs).
The role of real estate stocks in a mixed-asset portfolio is another important issue. Using
monthly data from 1980 to 1988, Asabere et al. (1991) find that international property companies are
negatively correlated with T-Bills and only slightly positively correlated with the REITs, world Index (a
proxy for international securities in general) and the Salomon Corporate Bond Index (a proxy for
international bonds). Their results thus provide initial evidence on the diversification gains from adding
international real estate to a mixed-asset portfolio. Eichholtz (1995) compares the diversification
benefits derived from international real estate investments to those of international stock and bond
investments and concludes that property shares are less strongly correlated than common stock and
bond returns across national boundaries. Eichholtz (1997) further explores the relationship between
international real estate stocks and stock indices. Using correlation analysis between the real estate
indices and stock indices in 19 countries and across three regions, he finds Asian markets are highly
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correlated while European markets are not. One possible reason for higher correlation coefficients
between Asian real estate and stock markets is due to higher securitization level of real estate in stock
markets. Gordon et al. (1998) suggest that the addition of international real estate securities to a mixedasset portfolio consisting of US stocks, corporate bonds, real estate securities and international common
stocks results in diversification benefits. They also estimate the actual incremental benefit (value-added)
of international real estate securities when placed in a mixed-asset portfolio in term of portfolio returns.
Their country correlation coefficients range from 0.24 to 0.96 showing that for some countries
diversification benefits might be gained from an international investment strategy. Stevenson (1999)
examines 17 stock market indices, 13 bond market indices, 5 commodities, UK property and Irish
property funds. He analyses the mean returns, standard deviations and correlation coefficients of the
returns and constructs several efficient frontiers without and with constraints, systematically adding
international stocks and bonds to the portfolios. In another study, Stevenson (2000) uses a price-hedged
REIT technique to develop a direct real estate return series by removing the impact of general stock
market on indirect property returns. He examines the mean returns of property companies, the standard
deviations, correlation coefficients and finally efficient portfolios. He finds that the correlation
coefficients are very low (0.008–0.461) but even lower if the hedged indices are used (0.124 to 0.189)
and that more diversification benefits are derived from using international stocks. Recently, Maruer and
Reiner (2002) investigate mixed-asset portfolios including stocks, bonds and international real estate
companies for five countries. They examine portfolio diversification from both the US and German
investors’ perspectives and find that adding international real estate improves the risk–return
characteristics of the portfolios particularly for the low- to medium-risk levels. Finally, Conover et al.
(2002) examine risk–return performance of publicly traded foreign real estate companies and compare
their performances with investments in US stocks, US real estate and foreign stock investments from
1986 to 1995. They focus on the 1987 stock market crash and find that international real estate
securities have high correlations and provide lesser protections during market downturns, an evidence
which is consistent with prior stock market studies of King et al. (1994) and Longin and Solnik (1995).
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Similarly, several studies on emerging market securities also conclude that international real
estate securities offer diversification benefits for a real estate portfolio. Using quarterly and monthly
data separately in two studies, Lu and Mei (1999) and Hu and Mei (1999) examine the return-generating
process of property indices in ten emerging markets (Argentina, China, Hong Kong, Indonesia,
Malaysia, Philippines, Peru, Singapore, Thailand and Turkey), and find that property indices are more
volatile than their respective market indices and US NAREIT index. Additional diversification benefits
to invest in emerging market property securities beyond that associated with international stocks are
found, but correlations are higher during times of high volatility. Ooi and Liow (2004) examine the riskadjusted returns of real estate securities traded in seven Asia markets (Hong Kong, Indonesia, Malaysia,
Singapore, South Korea, Taiwan and Thailand). Panel regressions are employed to shed light on how
firm-specific attributes and time-varying factors affect the risk-adjusted returns of real estate stocks
across different markets and over time. They find that securitized real estate in five of the East Asian
economies underperformed the general stocks between 1992 and 2002. Liow and Sim (2004) examine
the risk and return profile of Asian property stocks from an American investor’s point of view. Using a
dataset that includes monthly dollar-dominated securitized property and market returns of the USA, the
UK and ten Asian markets (China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines,
Singapore, Taiwan and Thailand) for the 1990-2003 time period, their results indicate that Asian
property stock markets have not produced high levels of compound returns relative to the US REIT and
UK real estate stock markets over the study period. Asian property stocks have also experienced a
higher level of volatility compared to their USA and UK counterparts. Asset allocations using meanvariance optimization are difficult to carry out as many of the Asian property stock markets are not
normally distributed. Additionally, Asian property stocks have been able to provide diversification
benefits when combined with developed countries’ market and securitized property portfolios. However,
the case for separate allocations to international real estate stocks is weakened by the high correlations
that are found in Asian markets between the property stock and broader market indexes. Liow et al.
(2005) investigates the long-run and short-term relationships among (a) four Asian property stock
markets of Japan, Hong Kong, Singapore and Malaysia; and (b) four European property stock markets
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of UK, France, Germany and Italy. Employing both Johansen multivariate cointegration analysis and
extended EGARCH (1, 1) methodology, there is minimal long-term relationship among the four Asian
and four Europe property stock markets respectively. Additionally, there is weak mean transmission and
insignificant evidence of cross-volatility spillovers. The resultant findings imply that investors would
benefit from diversifying property stock portfolios internationally within Asia and Europe and across
the two regions on both long and short term basis. Finally, Liow (2006) investigates the dynamics of
conditional returns, volatility and betas for listed real estate markets of regional Asia-Pacific, Australia,
Hong Kong, Japan, Singapore, Malaysia, the Philippines, Europe, the UK and the US and two world
market indexes. He finds evidence of time-varying volatility that displays clustering, high persistence
and predictability. The level of volatility and volatility persistence in developing / emerging real estate
markets of Asia-Pacific are considerably higher than those of developed markets, both at the
unconditional and conditional levels.
In summary, key findings of previous work are that diversification into international real estate
provides a way of achieving an efficient portfolio by a reduction in the variance of returns and an
enhancement of portfolio performance. Further, diversification across different markets and regions can
result in more efficient portfolios. While much work has been done in this area, it is essential to assess
the roles of Asian real estate securities within international investment portfolios. This study undertakes
this task.
3.
RESEARCH DATA
This study considers 15 national securitized real estate markets, those of Japan (JP), Australia
(AU), New Zealand (NZ), Hong Kong (HK), Singapore (SG), Korea (KR), Taiwan (TW), Malaysia
(MY), the Philippines (PH), Thailand (TH), Indonesia (ID), China (CN), India (IN), the United
Kingdom (UK) and the United States (US). Thus, apart from the US and UK markets, the sample
includes 13 Asian national markets that have different institutional and market structures from the
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Western economies. The choice of this comprehensive sample1 further enhances the contribution of this
paper since this fuller range of Asian real estate markets have been investigated less thoroughly in the
past and is thus of significant interest to the world investors and policy makers. In addition, these Asian
markets that are generally aggressive with higher systematic and idiosyncratic risks (Liow and Sim,
2004) are compared and contrasted with the US and UK. For all countries, monthly returns for general
stocks, real estate securities, bonds and cash over the study period of 1996-2005 are extracted from the
Datastream.2 All returns are in a common currency, the US dollar. This implies that currency risk of
international investment is left unhedged (Gordon et al., 1998). The single currency approach simplifies
the research and predominantly assumes the US investors’ perspectives. Table 2 provides a summary.
(Table 2 here)
For common stocks and property equities they are represented by the main national index, such
as the S& P’s Composite and FTSE 350 Real Estate. Only in the case for Australian securities, the
relevant Datastream index (S&P /ASX 300 Property DS-CALC) is used since a nationally produced real
estate securities index is not available. The real estate stock sample consists of real estate-related firms
that are publicly traded in the respective stock markets. Construction-related firms are selected as a
proxy for real estate security performance in Korea, Taiwan and India since there is no equivalent
property stock index for these countries. For the US, the NAREIT is used as a proxy for the US real
estate security market.
The medium-term 5-year or 5-7 year government bond is chosen as the proxy for bond market
performance if available. However, for Malaysia, the index for long-term government securities without
specific maturity is chosen since no other better proxy is available from the Datastream. For markets
like China, Indonesia, Philippines, Taiwan and Thailand, the JP Morgan emerging market bond indices
(such as JPM ELMI and JPM EMBI) are used as proxies for their bond market performances since
1
We further note that this sample covers ALL maturing / emerging real estate markets in the Asia-Pacific
region.
2
Except for New Zealand where the first available data from the Datastream is January 1998.
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there is no equivalent medium- or long-term government bond/treasury bond data available from the
Datastream.
As for returns on cash, 3-month Treasury bill (T-bill) is chosen as a proxy for the USA,
Singapore and Philippines. The next alternative proxy is monthly returns on 3-month Interbank rates. If
that is still non-existence or not available from the Datastream, 3-month deposit rates will be used
(Taiwan, Malaysia, Indonesia, India and China). One final case is for Korea where Treasury bill,
Interbank and Deposit rate are all unavailable. Following Glascock et al. (2002), the Korean risk-free
rate is represented by the yield on short-term government bond (one-year Korea monetary stability
bond).
4.
RESEARCH METHODOLOGY
The present research comprises four main components: performance analysis, correlation
analysis, mixed-asset portfolio analysis and international real estate security diversification analysis.
First, to assess risk-adjusted performance for the Asian property companies, monthly total
returns over the 10-year period from January 1996 to December 2005 are used, as well as equivalent
performance measures for stocks, bonds and cash, with analyses done in US dollars. To assess the
dynamics of the changing investment environment, sub-period analysis will also be carried out over
1996-2000 and 2001-2005. The first sub-period includes the Asian financial crisis period starting from
July 1997 followed by the recessionary and recovery stages of the markets following the financial crisis.
In the second sub-period (i.e. millennium period), many Asian countries are seen with improved
economic outlook and investment interest in Asian real estate markets is intensifying. The risk-adjusted
investment performance indicators include average monthly return, average monthly risk, coefficient of
variation (CV) and Sharpe Index. Coefficient of variation (CV) is a measure of relative variability found
by dividing the standard deviation by the expected return. The Sharpe Index (SI) measures investment
performance using total risk. SI is a measure of reward to variability. The higher the index, the higher
the risk-adjusted return. If a portfolio outperforms the market, the portfolio’s SI is greater than the
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market’s SI. The following formula calculates the Sharpe Index in which R f denotes the risk-free rate
of return.
SI =
E (r ) − R f
σr
(1)
Second, the existence of diversification opportunities is investigated through the return
correlations over the overall sample period from 1996 to 2005 and two five-year sub-periods. In
addition, since inter-asset correlations change over time and are linked to economic activity, property
cycles and business cycles (Longin and Solnik, 1995), 12-month rolling correlation analyzes are also
conducted to assess the stability of the correlation pattern over time. Additionally, international
correlations among the national real estate markets are also presented in the form of a correlation matrix.
Correlations fall in the range of –1 to +1; values closer to +1 reflect poor diversification benefits;
negative values or values near zero reflect significant diversification benefits.
Third, the impact of adding an increasing amount of real estate securities to a mixed-asset
portfolio containing Asian equity, bonds and cash is evaluated. Mixed-asset portfolio analysis for all
domestic portfolios with up to 20% property stocks (increasing in 5% increments) is conducted to assess
the risk-adjusted portfolio returns, portfolio risks and terminal wealth. Portfolio risk and return is a
measure of the risk and return profile of the portfolio at different levels of asset classes in the portfolio.
Portfolio terminal wealth is the dollar value of the portfolio over the 10-year period for different levels
of asset classes in the portfolio with a given initial wealth of $10,000. In addition, two optimal mixedasset portfolios for each country are constructed (unconstrained and constrained versions). The optimal
portfolios under weight constraints are investigated in order to see whether the imposition of realistic
constraints would have an impact on the allocations placed Asian property stocks.
Finally, we explore specifically the role of Asian property companies in an international real
estate investment portfolio by first analyzing the full-sample period correlations and rolling correlations
among all Asian markets and between each of the markets with the USA/UK. Additionally, 10 optimal
portfolios are constructed by including Asian real estate companies into the international securitized real
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estate markets. In line with the market practice, all 13 Asian markets are broadly classified into two
groups based on their level of economic maturity. The first group is Asian developed/maturing markets
comprising Australia, Hong Kong, Japan, Korea, New Zealand, Singapore and Taiwan. The second
group includes 6 Asian developing markets of China, India, Indonesia, Malaysia, Philippines and
Thailand. An optimal portfolio is constructed for:
(a) All 15 markets
(b) US + Asia markets
i.
US and all Asia markets
ii.
US and Asia developed markets
iii.
US and Asia developing markets
(c) UK + Asian markets
i.
UK and all Asia markets
ii.
UK and Asia developed markets
iii.
UK and Asia developing markets
(d) Asia real estate portfolio
i.
All Asia markets
ii.
All Asia developed markets
iii.
All Asia developing markets
Mathematically, the Markowitz portfolio model is used to optimize the proportion of funds to
invest in each asset in a mixed-asset portfolio. The expected rate of return, the variance of returns and
the covariance for each asset are used to estimate the portfolio return, portfolio risk, according to the
following formulas: (2) to (4).
The first constraint equation (3) requires the weighted return of the asset to be higher than
expected portfolio returns. The second and third constraint equation in (4) eliminates idle investment
capitals and restricts any short-selling of assets. Matrix Laboratory (MATLAB) Financial Toolbox and
Excel Link Toolbox provide functions that compute and graph risks, rates of return, and the efficient
frontier of portfolios.
11
Minimize σ p =
2
n
n
∑∑ x x σ
i =1 j =1
i
j
(2)
ij
Subject to
n
E (rp ) = ∑ xi E (ri )
(3)
i
n
∑x
i =1
i
=1
i = 1, …, n
(4)
xi ≥ 0
Where:
x = the proportion of portfolio allocated to each asset,
E (rp ) = the expected portfolio return,
E (ri ) = the expected return on asset i,
σ ij = the covariance between asset I returns and asset j returns
5.
RESULTS AND DISCUSSION
5.1
Investment Performance
Figures 1(a) and (b), respectively, plot the risk-return profile for all 15 stock and real estate
securities markets. Over the full sample period, real estate markets in Indonesia, Thailand, Korea,
Taiwan, Philippines, Malaysia and to a lesser degree, Singapore and Hong Kong, exhibit high-risk and
negative-return profiles. On the contrary, the USA, UK, Japan, Australia and New Zealand display low
(/moderate)-risk and positive-return patterns.
(Figures 1(a) and 1(b) here)
As reported in Table 3, the range of average monthly property company returns is between 2.29% (Thailand) and 0.82% (India). Compared with common stocks, bond and cash, property stocks
report the worst return performance for all countries except for Japan, UK and USA. Except for India,
the other 12 Asian securitized real estate markets underperformed the US and UK counterparts when
only returns are considered. In addition, property stock markets in Hong Kong, India, Indonesia, Japan,
Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand were affected by the 1997 Asia financial
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crisis and significantly underperformed cash, bond and general market over the period 1996-2000. The
range of negative returns is between (0.10%) for Australia and (7.17%) for Thailand.
(Table 3 here)
The range of real estate return volatility, measured by the monthly standard deviation of returns
is between 4.40% (Australia) and 24.14% (Indonesia) for the 13 Asian countries over the full study
period. The corresponding range of the monthly stock market risk is between 5.01% (Australia) and
14.38% (Indonesia). Except for Australia, New Zealand and the US, all other securitized real estate
markets experienced higher risk than their respective stock markets. Additionally for several markets
including Indonesia and Thailand, the real estate return volatility is much higher than that of general
market. Another observation is that only the Australian market has reported a lower return volatility
than the UK market, but also higher than the US market. Compared to its Asian counterparts, the US
NAREIT index has the lowest monthly return volatility (3.92). Of course, the influence of the 1997
Asian financial crisis should again be taken into consideration
Table 3 contains two risk-adjusted investment performance indicators, the coefficient of
variation (CV) and Sharpe index (SI), for the full period and two sub-periods. Overall, the results
indicate Asian property companies offer inferior risk-adjusted returns than the respective stock markets.
The best performing securitized real estate market is Japan on a risk-adjusted basis. The US and UK real
estate markets also display superior risk-adjusted performance relative to their stock markets.
Additionally, Asian bonds outperformed their respective stock and real estate security markets on a riskadjusted basis.
In summary, from the performance measurement standpoint, over the last ten years, Asian
property companies (except for Japan) offered inferior average monthly returns compared to Asian
shares, and at a higher level of risk. Consequently, Asian property companies offer inferior risk-adjusted
returns than the respective stock markets. Furthermore, all Asian bonds markets outperformed their
respective stock and real estate security markets on a risk-adjusted basis. These performance findings
are contrasted with those reported by Newell (2003) for European property companies over 1993-2002.
Almost all the Asian real estate markets were badly affected by the 1997 Asian financial crisis and
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consequently reported negative and inferior risk-adjusted return performance than other domestic asset
markets over the 1st sample period of 1996-2000. However, many of them recovered and reported
improved risk-adjusted performance in the 2nd sample period (2001-2005) as the regional upturn
becomes more evident.
5.2
Inter-asset Correlation Analysis
The asset class diversification benefits may be gained in an Asian mixed-asset portfolio if the
correlation coefficients between each domestic asset class are low. However, Table 4 shows that the
correlations between property stocks and common stocks are relatively high in many Asian markets,
although the magnitudes of co-movements differ for each market. The range of correlation coefficients
is between 0.652 (India) and 0.933 (Philippines). These figures are significantly higher when compared
with 0.200 for the US and 0.452 for the UK real estate markets. The high correlation in Asian markets
can be partially explained by higher market capitalization of real estate related firms in the stock market
index. For example, in Hong Kong, property-related firms make up nearly one-third of the market
capitalization of the Heng Seng Index (Glascock et al., 2002). The findings may also imply, unlike the
USA and UK, the integration of securitized property with the performance of the broader stock market
is stronger in Asia countries. Accordingly the case for separate allocations to international real estate
stocks is weakened. Furthermore, the property stock / stockmarket correlations do not vary considerably
in declining (1996-2000) or rising (2001-2005) markets, with five of the Asian markets (Australia,
Korea, Malaysia, NZ and Singapore) showing reducing property stock / stockmarket correlation in
recent years. Finally, the evolution of correlations between real estate stocks and the stock markets is
depicted in Figure 2. The country-specific graphs show that the property stock / stockmarket
correlations fluctuate over time for Japan, China, Indonesia, India, Korea, Taiwan, the UK and the USA.
The property stock / stockmarket correlation is relatively more stable for Australia, Hong Kong,
Malaysia, Philippines, Singapore and Thailand.
(Table 4 and Figure 2 here)
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In contrast, low or negative correlations between property securities and bonds are observed for
some Asian countries, namely Australia (-0.063), China (0.187), Hong Kong (-0.134), India (-0.243),
Japan (-0.030), Korea (-0.351), New Zealand (-0.339) and Singapore (-0.057). Another observation is
that consistently low correlations between property stocks and cash are detected in all Asian markets,
ranging between -0.327 (Korea) and 0.202 (China) with China as the only market reporting a positive
correlation coefficient. The low or negative correlations between real estate securities and bonds/cash
indicate possible diversification potential in a mixed-asset portfolio. In the next section, Asian real
estate securities are analyzed in a mixed-asset portfolio context that comprises stocks, property stocks,
bonds and cash.
5.3
Mixed-Asset Portfolio Analysis
This section analyzes the potential of Asian property companies as a diversification tool in the
domestic setting of the countries studied. The value-add benefits of Asia real estate securities in a
mixed-asset portfolio are measured by portfolio return, risk and terminal wealth. Despite low real estate
securities and bonds/cash return correlations suggesting potential diversification benefits, it is necessary
to assess the actual value-added role of Asian property securities when placed in mixed-asset portfolios,
since correlations are only important after relative returns and risks are considered.
Results for mixed-asset portfolios for individual countries are presented in Table 5. For all
Asian countries except Japan, the effect of adding property stocks to a portfolio of stocks, bonds and
cash is a reduction in portfolio terminal wealth accompanied by increase in portfolio risk. Although the
terminal wealth for the Japanese asset portfolio has increased by 10.9% as property securities have been
added to the portfolio up to 20% of the fund, there is also increased portfolio risk of about 29.1%.
Similarly, property securities also add value to the UK portfolio (about 3%) but are also accompanied
by an increase in portfolio risk of about 12.2%. Only for the US portfolio, investors are able to derive
added terminal value (+4.3%) with a reduction in portfolio risk (-6.7%) and an increase in portfolio
risk-adjusted return (measured by CV) of up to 12.7% when REITS are added to the domestic portfolio
up to 20%.
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(Table 5 here)
Table 6 provides an unconstrained optimal domestic portfolio consisting of shares, bonds, cash
and real estate securities for all 15 countries. During the study period (1996-2005) all portfolios are
dominated by bonds and cash at the minimum risk spectrum of efficient frontiers. All real estate
securities and stock allocation are all below one percentage point because of the inferior risk-adjusted
returns of Asian real estate securities and general stocks compared to bonds and cash in the study period.
Surprisingly, the US REIT and UK real estate is also not a major asset (0.21% each) in their domestic
optimal portfolio at minimum risk level.
(Table 6 here)
A constrained domestic portfolio model is also constructed for each country. The three
constraints imposed are (a) maximum 5% cash, (b) maximum 40% bond and (c) maximum 20% real
estate security. A different picture emerges. As can be seen from Table 6, the proportion of real estate
securities in the respective domestic mixed-asset portfolios are 20% (Australia), 20% (NZ), 20% (US),
6.84% (UK), 2.23% (Korea) and 1.77% (India). However, property stocks fail to make a presence in
other Asian investment portfolios. With the exceptions for Korea and NZ, the inclusion of property
securities in other four investment portfolios increases their portfolio returns and risks. For example,
while the mixed-asset portfolio returns for India increase from 0.60% (unconstrained – 0.24% property
stock allocation) to 0.87% (constrained and with 1.77% property stock allocation), its portfolio risks
also increase from 0.15% (unconstrained model) to 4.80% (constrained model). Nevertheless, the risk
for the constrained portfolio is still lower than the common stock risk (8.79%) and property securities
risk (13.01%). Taking the results as whole, the evidence for diversification benefits in Asian investment
portfolio is still far from pervasive.
5.4
Composite picture on mixed-asset portfolio analysis
With six key investment performance criteria considered, Table 7 presents the composite
picture regarding the performance card for each country. Overall, the best-performing countries are:
USA, UK, Japan, Australia, New Zealand, and to a lesser degree, India and Korea.
16
(Table 7 here)
5.5
International Real Estate Securities Diversification
International real estate securities correlation analysis
One key rationale for investing in Asian property stocks is to achieve portfolio diversification
in order to minimize investment risk. As many Asian property stock markets are opened up to foreign
investors, US / UK investors may invest in Asian property stocks with portfolio diversification in mind.
The key question they will ask is: are there diversification benefits derived from investing in Asia real
estate securities? In the present context, since Asian property stocks do not to add value to Asian mixedasset portfolios, are there still benefits derived from international diversification with a universe of
Asian property stocks from the perspectives of US and UK investors?
To provide some answers, Table 8 displays the correlation matrix between the 15 property
stock indexes for the full study period and the two shorter sub-sample periods. The lower the correlation
coefficient, the greater the risk reduction benefits associated with diversification. If international
diversification in Asia property is beneficial, a low correlation between the property indexes is expected.
(Table 8 here)
As the numbers from Table 8 indicate
, for the full 1996-2005 period, international investors investing in Asian property stocks are expected to
derive some diversification benefits as the correlations between the US/UK and Asian securitized
property indexes are considerably low or negative. The correlation coefficients between the USA
NAREIT index and Asian property indexes range between -0.202 (with Indonesia) and 0.214 (with
Australia). Similarly, the highest correlation coefficient between the UK FTSE real estate index and
Asian property indexes is only 0.342 (with India). The correlation coefficient between the US and UK
property indexes is also at the low end (0.205: 1996-2005; 0.139 and 0.282 for the 1st and 2nd subperiods respectively).
The correlation coefficients between the respective pairs of Asian property stock indexes are
generally higher than those with the US and UK. This is reasonably expected due to the influence of
17
some common events impacting the region, such as the Asian financial crisis. For example, Singaporean
real estate stock index is highly correlated with property indexes of Hong Kong (0.827), Philippines
(0.611), Thailand (0.581), Indonesia (0.504) and Malaysia (0.462). Some other highly correlated Asian
real estate security indices are Australia and New Zealand (0.700), Philippines and Thailand (0.661) and
Hong Kong and Philippines (0.508).
Another observation is that China property stock index has very low correlation coefficients
with the US NAREIT (0.008) and the UK FTSE real estate index (0.075) and negative correlation
coefficient each with Hong Kong (-0.009), Philippines (-0.016) and Singapore (-0.002). This pattern
can be explained as China’s economy in the past decade has been largely domestically driven, as
opposed to many Asian countries, which are linked to the developed economies. However, the
improved integration of the Chinese property stock market with the US/UK and other Asian property
stock markets is observed in Panel C of Table 8 as the correlation coefficients between China and other
countries have generally increased in sub-period of 2001-2005. This trend can be explained by the
enhanced interdependence of capital markets between China and other economies after China’s entry
into the World Trade Organization (WTO) in 2001.
Comparing the two sub-periods (1996-2000 and 2001-2005), the correlations between the
NAREIT index and 12 Asian (except Philippines) markets have improved for the sub-period 2001-2005.
The same pattern is observed between the UK index and all 13 Asian real estate stock indexes. This
evidence implies that the degree of integration between the US REIT/UK property stock market and
Asia property securities markets has strengthened in recent years possibly because of the development
and establishment of REIT vehicles in some Asia countries. During this period, whilst the correlation
coefficients between the NAREIT index and Asian real estate securities indices are between -0150 (with
Indonesia) and 0.368 (with Hong Kong), the correlation coefficients between the UK FTSE index and
Asian property stock indexes range from 0.001(with Indonesia) and 0.540 (with Australia). Clearly, the
opportunities for Asian real estate security diversification to improve portfolio performance still exist
for the US and UK investors.
18
The country-specific graphs of Figure 3(a) show that international real estate securities
correlations (between the US and Asian countries and between the UK and Asian countries) vary over
time and across countries. Furthermore, the correlations do not follow the same pattern for all countries.
Figure 3(b) compares the correlations of all 13 real estate markets with the USA and UK markets. In
general, the movements in pair-wise correlations are far from synchronized. Specifically, the
correlations for the USA/Asian developing and the UK / Asian developing pairs are much less
synchronized than the correlations for the US/Asian maturing and UK/Asian maturing pairs.
Consequently, the different correlation patterns imply different degree of real estate market linkages
during the ten-year period and hence pockets of diversification opportunities might be exploited
(Figures 3a and 3b here)
Finally, Figure 4 provides the correlation coefficient patterns between securitized real estate
and market indexes as well as the correlations of individual Asia property stock indexes with the market
indices of the US and UK for the full 1996-2005 period. As observed, the correlation coefficients
between the property stock and local market indexes for the 13 Asian markets are very high (from 0.652
for India to 0.933 for Philippines). These figures compare favorably with 0.452 for the UK and 0.200
for the US markets. Unlike the US and UK, the relationship between securitized real estate with the
performance of broader stock market is therefore stronger for Asia countries. Accordingly the case for
separate allocations to international real estate stocks is weakened. Nine of the 13 Asia property
securities markets have a higher correlation each with the US market index than with the UK market
index suggesting possible stronger interdependence between the Asia securitized real estate markets
with the US equity market relative to the UK equity market. The highest correlation coefficients
between the Asian property stock indexes with the USA and UK market indexes are, respectively,
0.505 (between the USA and Hong Kong) and 0.510 (between the UK and Australia). Thus the addition
of Asia real estate securities in an international portfolio can still improve performance for the US and
UK investors.
(Figure 4 here)
International real estate securities asset allocation
19
The optimal portfolio results under the different scenarios are shown in Figure 5. First, when
the asset universe of all 15 real estate securities markets is considered, an optimal international real
estate securities portfolio has a high allocation of the USA REITs (45.27%) and Australian property
trusts (14.89%). This is followed by UK (13.17%), New Zealand (9.42%), China (9.02%), Japan (5.01%)
and Indonesia (2.20%). Whilst Malaysia and India real estate do make an appearance, their allocations
are minimal (0.55% for Malaysia and 0.50 for India). Finally, Hong Kong, Singapore, Korea, Taiwan,
Thailand and Philippines do not enter the portfolio at all. The resulting optimal portfolio return and risk
are 0.28% and 2.94% respectively. With regard to the individual real estate securities series, whilst the
USA REITS, UK property stocks, Australian property trusts, New Zealand real estate securities, Japan
and India property stocks produce higher returns than the portfolio returns, all individual securities risks
(between 3.92% and 24.14%) are higher than that of portfolio risk. There is therefore risk-reduction
benefit from constructing an international real estate securities portfolio comprising the USA, UK and
seven Asian markets.
Second, the US investors can expect optimal portfolios that achieve portfolio risk levels of
3.01% (US+ Asia markets), 3.18% (US + Asia developed markets) and 3.19% (US + Asia developing
markets). In all these three cases, the US REITs dominate the portfolios with allocations between 51%
and 73%. The results also show that Australia and China real estate stocks have a significant role in the
respective portfolios. As with the previous test, Hong Kong, Singapore, Korea, Taiwan and Thailand do
not enter at all.
Similarly, the UK investors can expect significant risk-reduction benefit from investing in
Asian property stocks. The resulting portfolios have risk levels of 3.57% (UK+ Asia markets), 3.81%
(UK+ Asia developed markets) and 4.44% (UK+ Asia developing markets). In all three portfolios, the
UK property stocks play a major role with allocations ranging between 25.7% and 61.3%. Again, whilst
Australia and China maintain their strong allocation in the respective portfolios, Hong Kong, Singapore,
Korea, Taiwan, Thailand and India fail to show their presence at all in the optimal portfolio.
Finally, an optimal “pure-Asia” property stock portfolio has the effect of achieving a portfolio
risk level of 3.86% (lower than any of the individual risk levels) with a portfolio return of 0.30%. As
20
expected, Australian property trusts dominate this portfolio with an estimated allocation of 48.45%.
This is followed by New Zealand (19.53%), China (18.17%), Japan (9.97%), India (1.62%), Malaysia
(1.48%) and Taiwan (0.78%). Other markets such as Singapore, Philippines, Thailand, Korea, Indonesia
and Hong Kong do not make an appearance in the portfolio. When the universe of real estate securities
is narrowed to include only Asia developed markets, Australian securities increase its allocation to
69.73% with the remaining shared by New Zealand (16.57%), Japan (11.13%) and Taiwan (2.57%).
Again, Singapore, Hong Kong and Korea do not enter the optimal portfolio at all. The resulting
portfolio return and risk are 0.48% and 4.17% respectively. Finally, China dominates an “Asiadeveloping” real estate securities portfolio with an estimated allocation of 53.48%. This is followed by
Philippines (19.66%), India (16.75%) and Malaysia (10.12%). Although the resulting portfolio risk is
increased to 6.35%, it is still much lower than the individual risk levels (between 8.55% for China and
12.67% for Philippines). Hence, diversification into Asia real estate stocks can provide positive
portfolio implications and is important for international property fund managers who have been seeking
property investment opportunities in the emerging real estate markets.
(Figure 5 here)
6.
CONCLUSION
The role of Asia real estate companies in investment portfolio has not been rigorously
examined in the literature. This study has focused on the diversification benefits and value-add effects
of property securities in Asia and international investment portfolios. With an increased emphasis on
international property investment and as the regional upturn becomes more evident, Asian property
companies potentially provide an important real estate investment opportunity for international property
fund mangers.
The conclusions obtained from this study may be summarized as follows: (a) Over the last ten
years, Asian real estate property companies (except for Japan) offered inferior average monthly returns
compared to Asia shares, and at a higher level of risk. Consequently, Asian property companies (except
for Japan) offered inferior risk-adjusted returns than the respective stock markets. Furthermore, all
21
Asian bonds markets outperformed their respective stock and property stock markets on a risk-adjusted
basis. Many Asian real estate markets were adversely affected by the 1997 Asian financial crisis and
consequently reported negative and inferior risk-adjusted return performance than other domestic asset
markets over the 1st sample period of 1996-2000. Kallberg et al. (2002) report a reduction in real estate
returns and an increase in real estate market volatility and correlation following the July 1997 Asian
financial crisis. However, several of them have recovered and reported improved risk-adjusted
performance in the 2nd sample period (2001-2005) as the regional upturn becomes more evident; (b)
High correlations of at least above 0.60 are found between Asian property stocks and Asian shares
performance, with this correlation reducing in recent years for some countries, reflecting possible
improved diversification benefits. Additionally, the low or negative correlations between property
securities and bonds/cash also indicate possible diversification potential in mixed-asset portfolios.
However, except for Australia, NZ, India and Korea, there is no portfolio evidence to support the
hypothesis that Asian property companies are able to provide increased diversification benefits in Asian
mixed-asset portfolios; (c) The significant role of Asian property stocks in a mixed-asset portfolio of
Asian shares, bonds and cash is clearly absent in 12 portfolios (except for Japan) as the level of Asian
property stocks in the portfolio increases from 0% to 20%. Specifically, the effect of adding property
stocks to a Japanese portfolio of stocks, bonds and cash is a reduction in portfolio terminal wealth
accompanied by an increase in portfolio risk. Although the terminal wealth for the Japanese asset
portfolio has increased by 10.9% as property securities have been added to the portfolio up to 20% of
the fund, there is also increase of portfolio risk of about 29.1%. It would thus appear that the primary
reasons behind the failure of Asia property stocks to add value to the domestic mixed-asset portfolios
was the asset’s poor performance relative to common stocks, cash and bonds; (d) The addition of Asia
property securities in an international portfolio can still improve performance for the US and UK
investors as the correlation coefficients between the Asian property securities index with the USA and
UK market indexes are only between weak to moderate. In the present context, diversifying across
Asian, US ad UK real estate securities markets with lower correlation of returns allows investors to
22
reduce the total portfolio risk without sacrificing too much return. Hence, the significant role of Asian
property companies in international real estate securities portfolio is reasonably evidenced.
A clear picture emerges from this study that over the last ten years, Asian property companies
have failed to contribute to mixed-asset portfolios of Asian shares, bonds and cash in terms of improved
risk-return performance and enhanced portfolio diversification benefits. This was mainly due to the
property stocks’ inferior investment performance affected by the Asian financial crisis and reasonably
high property securities / common stock correlations in several Asian countries. These findings are
different from those of Newell (2003) for European property companies over 1993-2002. However,
diversification into Asian property stocks can provide positive portfolio implications for the US and UK
investors. This “Asian evidence” is supportive of findings of previous studies on the USA REIT and
European property stocks regarding the diversification benefits derived from investing in international
securitized real estate markets. Thus investing in Asian real estate stock portfolios than investing in
Asian mixed-asset portfolios is seen to be the more effective diversification strategy over this period.
Acknowledgement
This paper has benefited very much from Professor Graeme Newell’s research report (August 2003)
entitled “Diversification benefits of European and Global Property Stocks”. We are very grateful to Prof
Newell for providing us with a copy of the said report.
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Table 1
Countries
Japan
Hong
Kong/China
South Korea
India
Australia
Taiwan
Indonesia
Thailand
Malaysia
Singapore
Philippines
New Zealand
Total AsiaPacific
Size of Asian Real Estate Market by Market Capitalization (30 June 2005)
Real Estate
($ Billion)
Total Listed
($ Billion)
1966
83.2
Listed RE
/Total RE
(%)
4.23%
3705
Listed
RE/Stock
Market (%)
2.25%
288
79.1
27.47%
1354
5.84%
237
79
231
113
38
31
29
87
13
36
0.9
0.3
70.3
4.9
1.8
5.7
8.3
22.6
4.1
2
0.38%
0.38%
30.43%
4.34%
4.74%
18.39%
28.62%
25.98%
31.54%
5.56%
529
450
659
502
81
107
187
243
35
38
0.17%
0.07%
10.67%
0.98%
2.22%
5.33%
4.44%
9.30%
11.71%
5.26%
3148
283.2
9.00%
7890
3.59%
Stock Market
($ Billion)
Source: World Bank Organization, FTSE, EPRA (2005)
25
Table 2
Research Data for Stock, Real Estate Securities, Bonds and Cash
Country
Australia
Share
S&P ASX 300
Real Estate Security
S&P/ASX 300
PROPERTY DS CALC.
Bond
AUSTRALIA BOND
YIELD 5YEAR
Cash
AUSTRALIA
INTERBANK 3
MONTH - MIDDLE
RATE
TIME DEPOSIT RATE
3M - MIDDLE RATE
China
SHANGHAI SE
COMPOSITE
SHANGHAI SE REAL
ESTATE
JPM EMBI GLOBAL
CHINA
Hong Kong
HANG SENG
HANG SENG
PROPERTIES
HONG KONG
EXCHANGE FUND
NOTE 5 YEAR
India
S&P CNX 500
S&P CNX CNSTR.
Indonesia
JAKARTA SE
COMPOSITE
JAKARTA SE CNSTR.
PROPERTY
INDIA T - BOND 5
YEAR
JPM ELMI+
INDONESIA
HONG KONG
INTERBANK 3
MONTH - MIDDLE
RATE
INDIA BANK DEPOSIT
90 - 180 DAY
DEPOSIT 3 MONTH MIDDLE RATE
Japan
TOPIX
TOPIX REAL ESTATE
Korea
KOREA SE
COMPOSITE (KOSPI)
KOREA SE CNSTR.
JAPAN
GOVERNMENT BOND
SERIES 5 YR
KOREAN TREASURY
BOND 5YEAR
JAPAN INTERBANK 3
MONTHS OFFERED RATE
KOREA MONETARY
STAB. BONDS 1Y
Malaysia
KLCI COMPOSITE
KUALA LUMPUR SE
PROPERTIES
New Zealand
NZX ALL
NZX PROPERTY
Philippines
PHILIPPINE SE
COMPOSITE
PHILIPPINE SE
PROPERTY
MALAYSIAN
GOV.SECS. MEDIUM
TERM
NEW ZEALAND
GOVT.BD. YIELD 5
YEAR
JPM ELMI+
PHILIPPINES
Singapore
SINGAPORE ALL SING EQUITIES
SINGAPORE ALL
SINGAPORE T BOND YIELD 5 YEAR
MALAYSIA DEPOSIT
3 MONTH - MIDDLE
RATE
NEW ZEALAND
INTERBANK 3 MTH MIDDLE RATE
PHILIPPINE
TREASURY BILL 91D
- MIDDLE RATE
SINGAPORE T - BILL
3 MONTH
Taiwan
TAIWAN SE
COMPOSITE
TAIWAN SE CNSTR.
JPM ELMI+ TAIWAN
Thailand
BANGKOK S.E.T.
THAILAND SE
PROPERTY
DEVELOPMENT
JPM ELMI+
THAILAND
UK
FTSE 350
FTSE 350 REAL
ESTATE
MSCI UK GILTS 5 - 7Y
US
S&P 500 COMPOSITE
NAREIT EQUITY
MSCI US TREASURY
5 - 7Y
TAIWAN DEPOSIT 3
MONTH - MIDDLE
RATE
THAILAND
INTERBANK 3 MTH
(BB) - OFFERED
RATE
UK INTERBANK 3
MONTH - MIDDLE
RATE
US TREASURY BILL 3
MONTH - MIDDLE
RATE
Source: Datastream (2005)
26
Table 3
Country
Australia
China
Hong Kong
India
Indonesia
Japan
Korea
Malaysia
NZ
Philippines
Singapore
Taiwan
Thailand
UK
USA
Portfolio Performance Analysis
Asset class Avg return
Shares
0.63%
Bonds
0.47%
Cash
0.44%
Property stocks 0.50%
Shares
0.67%
Bonds
0.61%
Cash
0.20%
Property stocks 0.02%
Shares
0.22%
Bonds
0.45%
Cash
0.36%
Property stocks -0.14%
Shares
1.00%
Bonds
0.73%
Cash
0.60%
Property stocks 0.82%
Shares
-0.64%
Bonds
0.08%
Cash
1.20%
Property stocks -1.58%
Shares
-0.06%
Bonds
0.08%
Cash
0.03%
Property stocks 0.44%
Shares
0.16%
Bonds
0.64%
Cash
0.60%
Property stocks -0.82%
Shares
-0.46%
Bonds
0.24%
Cash
0.37%
Property stocks -1.57%
Shares
0.45%
Bonds
0.50%
Cash
0.49%
Property stocks 0.31%
Shares
-0.86%
Bonds
0.45%
Cash
0.75%
Property stocks -0.95%
Shares
-0.13%
Bonds
0.25%
Cash
0.13%
Property stocks -0.17%
Shares
0.12%
Bonds
0.21%
Cash
0.29%
Property stocks -0.66%
Shares
-0.98%
Bonds
0.16%
Cash
0.46%
Property stocks -2.29%
Shares
0.48%
Bonds
0.67%
Cash
0.44%
Property stocks 0.70%
Shares
0.57%
Bonds
0.48%
Cash
0.30%
Property stocks 0.70%
1996-2005
Ave risk
CV
5.01%
7.967
0.07%
0.151
0.06%
0.137
4.40%
8.757
7.16%
10.642
1.62%
2.656
0.08%
0.412
8.55%
529.793
7.92%
35.295
0.16%
0.35
0.24%
0.657
11.39%
-82.333
8.79%
8.783
0.23%
0.312
0.15%
0.255
13.01%
15.829
14.38%
-22.557
10.67% 133.709
0.72%
0.598
24.14%
-15.257
5.95%
-92.672
0.05%
0.606
0.02%
0.915
8.97%
20.443
13.11%
80.322
0.26%
0.413
0.28%
0.461
16.94%
-20.682
10.56%
-22.882
4.76%
19.489
0.17%
0.444
12.60%
-8.014
5.25%
11.647
0.04%
0.085
0.08%
0.17
5.25%
17.19
9.88%
-11.459
3.55%
7.875
0.27%
0.354
12.67%
-13.396
7.50%
-58.414
0.06%
0.247
0.07%
0.529
12.02%
-72.658
8.54%
71.099
1.73%
8.204
0.15%
0.535
12.78%
-19.267
11.95%
-12.236
4.32%
27.443
0.40%
0.861
19.48%
-8.523
3.93%
8.254
2.36%
3.537
0.10%
0.218
5.61%
8.057
4.55%
8.03
1.40%
2.896
0.14%
0.483
3.92%
5.596
SI
0.037
0.382
0
0.013
0.067
0.256
0
-0.021
-0.017
0.586
0
-0.044
0.045
0.538
0
0.017
-0.128
-0.105
0
-0.115
-0.015
1.09
0
0.046
-0.033
0.146
0
-0.084
-0.079
-0.027
0
-0.154
-0.008
0.2
0
-0.035
-0.163
-0.084
0
-0.134
-0.034
1.967
0
-0.024
-0.019
-0.042
0
-0.074
-0.12
-0.07
0
-0.141
0.01
0.097
0
0.046
0.059
0.133
0
0.103
Avg return
0.12%
0.51%
0.46%
-0.10%
2.30%
0.59%
0.24%
1.54%
0.47%
0.59%
0.55%
-0.25%
0.28%
0.93%
0.73%
-2.37%
-3.00%
-0.67%
1.58%
-4.63%
-0.50%
0.11%
0.04%
-0.64%
-1.75%
0.86%
0.83%
-4.87%
-1.42%
0.04%
0.49%
-2.86%
-1.20%
0.52%
0.50%
-1.30%
-2.21%
0.17%
0.95%
-2.66%
-0.64%
0.29%
0.15%
-0.80%
-0.51%
0.21%
0.42%
-2.59%
-3.72%
-0.03%
0.73%
-7.17%
0.81%
0.63%
0.52%
0.19%
1.24%
0.52%
0.42%
0.54%
1996-2000
Avg risk
CV
5.22%
42.433
0.08%
0.159
0.07%
0.147
4.84%
-50.07
8.09%
3.522
1.65%
2.784
0.09%
0.368
9.53%
6.17
9.80%
20.986
0.08%
0.131
0.15%
0.277
14.22%
-56.188
9.36%
33.669
0.10%
0.103
0.10%
0.137
11.13%
-4.698
18.10%
-6.038
14.85%
-22.311
0.81%
0.513
29.41%
-6.355
6.65%
-13.316
0.04%
0.365
0.02%
0.495
8.93%
-14.061
16.51%
-9.46
0.19%
0.225
0.21%
0.256
19.68%
-4.043
14.15%
-10
6.74%
172.537
0.17%
0.352
16.89%
-5.895
7.51%
-6.246
0.05%
0.101
0.12%
0.233
6.82%
-5.261
12.15%
-5.493
4.75%
27.98
0.21%
0.225
15.50%
-5.83
9.16%
-14.425
0.05%
0.164
0.07%
0.47
15.30%
-19.064
9.33%
-18.289
2.05%
9.597
0.06%
0.13
11.73%
-4.523
14.51%
-3.903
5.95%
-205.497
0.41%
0.552
24.42%
-3.405
3.70%
4.577
2.27%
3.581
0.06%
0.114
6.19%
32.934
4.69%
3.791
1.24%
2.368
0.04%
0.091
3.97%
7.401
SI
-0.065
0.536
0
-0.116
0.254
0.212
0
0.136
-0.009
0.492
0
-0.057
-0.048
2.087
0
-0.278
-0.253
-0.151
0
-0.211
-0.082
1.662
0
-0.076
-0.156
0.146
0
-0.289
-0.134
-0.067
0
-0.199
-0.226
0.539
0
-0.263
-0.26
-0.164
0
-0.233
-0.086
2.883
0
-0.062
-0.1
-0.101
0
-0.257
-0.307
-0.128
0
-0.324
0.079
0.051
0
-0.053
0.173
0.079
0
0.028
Avg return
1.13%
0.43%
0.42%
1.09%
-0.92%
0.63%
0.15%
-1.49%
-0.01%
0.31%
0.17%
-0.03%
1.71%
0.52%
0.48%
3.96%
1.68%
0.81%
0.82%
1.41%
0.36%
0.04%
0.01%
1.49%
2.04%
0.42%
0.37%
3.16%
0.48%
0.45%
0.26%
-0.30%
1.42%
0.49%
0.49%
1.24%
0.47%
0.73%
0.55%
0.74%
0.37%
0.21%
0.10%
0.46%
0.74%
0.21%
0.15%
1.24%
1.72%
0.34%
0.19%
2.52%
0.15%
0.70%
0.36%
1.20%
-0.09%
0.45%
0.17%
0.86%
2001-2005
Avg risk
CV
4.79%
4.253
0.03%
0.067
0.04%
0.104
3.87%
3.544
5.73%
-6.204
1.60%
2.558
0.01%
0.063
7.23%
-4.866
5.55%
-384.312
0.08%
0.238
0.12%
0.692
7.77%
-306.5
8.21%
4.795
0.10%
0.186
0.08%
0.157
14.01%
3.539
8.99%
5.342
3.17%
3.895
0.29%
0.352
17.23%
12.2
5.20%
14.288
0.01%
0.339
0.01%
0.65
8.95%
5.992
8.27%
4.053
0.08%
0.189
0.06%
0.157
12.67%
4.008
4.92%
10.317
0.80%
1.801
0.01%
0.049
5.84%
-19.298
4.84%
3.418
0.03%
0.057
0.06%
0.119
3.83%
3.094
6.81%
14.619
1.69%
2.331
0.13%
0.237
8.88%
12.013
5.44%
14.731
0.04%
0.207
0.05%
0.512
7.62%
16.52
7.71%
10.426
1.37%
6.545
0.08%
0.519
13.57%
10.983
7.99%
4.649
1.56%
4.584
0.07%
0.356
11.19%
4.442
4.15%
27.758
2.47%
3.52
0.05%
0.126
4.97%
4.156
4.34%
-46.479
1.56%
3.484
0.09%
0.532
3.89%
4.521
SI
0.147
0.382
0
0.173
-0.187
0.3
0
-0.226
-0.033
1.956
0
-0.025
0.15
0.455
0
0.248
0.096
-0.002
0
0.034
0.068
2.36
0
0.166
0.202
0.611
0
0.22
0.044
0.23
0
-0.097
0.191
-0.113
0
0.196
-0.013
0.103
0
0.021
0.049
2.433
0
0.047
0.077
0.043
0
0.08
0.191
0.096
0
0.208
-0.05
0.139
0
0.168
-0.062
0.175
0
0.176
Notes: Avg return = average monthly return (%); Avg risk = average monthly standard deviation (%); CV =
coefficient of variation; SI = Sharpe Index
27
Table 4
Country
Australia
China
Hong Kong
India
Indonesia
Japan
Korea
Malaysia
NZ
Philippines
Singapore
Taiwan
Thailand
UK
USA
Mixed - Asset Correlation Analysis
Correlation
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
Property Stocks/Shares
Property Stocks/Bonds
Property Stocks/Cash
1996-2005
0.780
-0.102
-0.063
0.855
0.187
0.202
0.896
-0.134
-0.209
0.652
-0.243
-0.192
0.805
0.698
-0.045
0.686
-0.030
-0.142
0.754
-0.351
-0.327
0.908
0.580
-0.272
0.805
-0.339
-0.219
0.933
0.590
-0.082
0.892
-0.057
-0.188
0.710
0.449
-0.125
0.842
0.483
-0.272
0.452
0.319
-0.106
0.200
-0.043
-0.018
1996-2000
0.781
-0.067
0.017
0.860
0.217
0.155
0.915
-0.364
-0.448
0.569
0.059
0.204
0.879
0.804
0.031
0.645
0.058
-0.093
0.814
-0.325
-0.273
0.921
0.627
-0.300
0.823
-0.435
-0.297
0.952
0.633
-0.001
0.903
0.009
-0.212
0.765
0.486
0.193
0.829
0.476
-0.164
0.247
0.365
-0.032
0.027
0.033
0.182
2001-2005
0.777
0.063
-0.083
0.834
0.162
-0.054
0.840
-0.098
-0.133
0.750
-0.141
-0.180
0.549
0.182
0.008
0.745
0.231
-0.098
0.567
-0.156
-0.127
0.803
-0.233
0.129
0.754
0.049
-0.055
0.871
0.416
0.111
0.864
-0.115
-0.110
0.671
0.452
-0.078
0.860
0.661
0.061
0.712
0.276
-0.097
0.405
-0.101
-0.020
2004-2005
0.773
-0.347
-0.554
0.875
0.234
0.161
0.865
-0.190
-0.065
0.844
0.462
0.245
0.733
0.504
0.072
0.846
0.228
0.340
0.562
-0.144
-0.138
0.793
0.482
0.420
0.624
0.096
0.084
0.876
0.488
0.073
0.736
-0.066
0.139
0.735
0.520
0.007
0.834
0.561
0.370
0.765
0.613
-0.083
0.511
0.495
-0.010
28
Table 5
Mixed-asset Portfolio Performance
Portfolio Composition
Country
Australia
China
Hongkong
India
Indonesia
Japan
Korea
Malaysia
NZ
Shares
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
Bonds
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
Cash
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
Pty stocks
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
Portfolio Performance
Return
0.55%
0.55%
0.54%
0.54%
0.54%
0.60%
0.57%
0.54%
0.51%
0.48%
0.33%
0.30%
0.28%
0.26%
0.23%
0.85%
0.85%
0.85%
0.85%
0.84%
-0.17%
-0.23%
-0.30%
-0.36%
-0.43%
0.00%
0.02%
0.04%
0.07%
0.09%
0.40%
0.34%
0.28%
0.21%
0.15%
-0.10%
-0.17%
-0.24%
-0.32%
-0.39%
0.47%
0.47%
0.46%
0.45%
0.44%
Risk
2.50%
2.55%
2.61%
2.68%
2.75%
3.71%
3.90%
4.09%
4.30%
4.51%
3.95%
4.27%
4.60%
4.94%
5.29%
4.39%
4.62%
4.89%
5.21%
5.56%
10.63%
11.07%
11.55%
12.06%
12.60%
2.97%
3.15%
3.36%
3.59%
3.84%
6.52%
6.86%
7.23%
7.64%
8.08%
6.55%
6.77%
7.01%
7.26%
7.52%
2.62%
2.70%
2.79%
2.90%
3.00%
CV
4.577
4.689
4.815
4.954
5.106
6.19
6.856
7.621
8.5
9.512
12.03
14.019
16.392
19.244
22.714
5.154
5.436
5.776
6.165
6.597
-63.567
-47.631
-38.805
-33.246
-29.45
2590.599
138.343
75.599
54.335
43.797
16.446
20.423
26.317
35.739
52.881
-68.467
-40.124
-28.973
-23.033
-19.354
5.515
5.797
6.108
6.448
6.817
Terminal
Wealth
19245.33
19191.32
19137.46
19083.75
19030.2
20490.93
19741.05
19018.39
18321.97
17650.85
14817.77
14402.06
13997.92
13605.02
13223.07
27651
27582.59
27514.34
27446.26
27378.35
8180.17
7563.71
6993.36
6465.67
5977.5
10013.79
10276.93
10546.94
10823.98
11108.23
16080.12
14949.6
13897.95
12919.71
12009.79
8915.6
8164.76
7476.68
6846.14
6268.37
17647.64
17469.4
17292.95
17118.26
16945.32
29
Philippines
Singapore
Taiwan
Thailand
UK
USA
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
50.00%
47.50%
45.00%
42.50%
40.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
40.00%
37.50%
35.00%
32.50%
30.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
0.00%
5.00%
10.00%
15.00%
20.00%
-0.18%
-0.21%
-0.25%
-0.29%
-0.32%
0.05%
0.04%
0.03%
0.01%
0.00%
0.17%
0.13%
0.09%
0.05%
0.01%
-0.38%
-0.47%
-0.57%
-0.66%
-0.75%
0.55%
0.56%
0.56%
0.57%
0.57%
0.51%
0.52%
0.52%
0.53%
0.54%
5.93%
6.20%
6.49%
6.79%
7.09%
3.75%
4.10%
4.48%
4.86%
5.25%
4.65%
4.89%
5.17%
5.48%
5.82%
6.98%
7.45%
7.96%
8.49%
9.05%
2.30%
2.33%
2.39%
2.48%
2.58%
2.23%
2.17%
2.12%
2.09%
2.08%
-33.715
-29.155
-25.985
-23.661
-21.892
79.817
114.88
182.652
365.659
2528.858
26.909
37.223
57.441
112.794
814.795
-18.387
-15.743
-14.032
-12.848
-11.989
4.185
4.204
4.264
4.363
4.493
4.406
4.204
4.044
3.925
3.847
8096.73
7744.52
7407.51
7085.04
6776.5
10579.35
10437.97
10298.46
10160.8
10024.96
12304
11707.87
11140.39
10600.2
10086
6337.46
5660.25
5054.87
4513.75
4030.13
19278.87
19422.8
19567.79
19713.86
19861
18343.02
18534.76
18728.49
18924.22
19121.99
30
Table 6
Mixed-asset portfolio allocation (unconstrained and constrained)
Unconstrained domestic allocation
Constrained domestic allocation*
Portfolio composition
Portfolio performance
Portfolio Composition
Portfolio performance
Country
Shares
Bonds
Cash
Pty stocks Return
Risk
Shares
Bonds
Cash
Pty stocks Return
Risk
Australia
0.00%
23.08%
76.80%
0.12%
0.450%
0.059%
35.00%
40%
5%
20.00%
0.531%
2.489%
China
0.00%
0.84%
99.16%
0.00%
0.198%
0.079%
55.00%
40%
5%
0.00%
0.624%
4.047%
Hong Kong
0.00%
99.80%
0.00%
0.20%
0.449%
0.155%
55.00%
40%
5%
0.00%
0.322%
4.328%
India
0.00%
0.00%
99.76%
0.24%
0.604%
0.150%
53.23%
40%
5%
1.77%
0.868%
4.803%
Indonesia
0.00%
0.00%
99.78%
0.22%
1.190%
0.711%
55.00%
40%
5%
0.00%
-0.259% 11.273%
Japan
0.02%
0.00%
99.95%
0.03%
0.026%
0.023%
55.00%
40%
5%
0.00%
-0.003%
3.258%
Korea
0.00%
99.44%
0.00%
0.56%
0.630%
0.244%
52.77%
40%
5%
2.23%
0.353%
7.147%
Malaysia
0.43%
0.24%
99.33%
0.00%
0.369%
0.156%
55.00%
40%
5%
0.00%
-0.137%
7.032%
New
Zealand
0.14%
95.69%
4.02%
0.15%
0.499%
0.039%
35.00%
40%
5%
20.00%
0.443%
3.007%
Philippines
0.35%
0.16%
99.49%
0.00%
0.743%
0.261%
55.00%
40%
5%
0.00%
-0.256%
6.386%
Singapore
0.14%
56.35%
43.51%
0.00%
0.194%
0.055%
55.00%
40%
5%
0.00%
0.034%
4.105%
Taiwan
0.00%
99.80%
0.00%
0.20%
0.449%
0.155%
55.00%
40%
5%
0.00%
0.165%
5.056%
Thailand
0.57%
0.00%
99.14%
0.29%
0.444%
0.376%
55.00%
40%
5%
0.00%
-0.451%
7.532%
UK
0.00%
0.00%
99.79%
0.21%
0.438%
0.094%
48.16%
40%
5%
6.84%
0.566%
2.440%
US
0.00%
0.42%
99.37%
0.21%
0.300%
0.143%
35.00%
40%
5%
20.00%
0.547%
1.882%
*Constrained weights: bonds (maximum 40%), cash (maximum 40%) and property stocks (maximum 20%)
31
Table 7
Country
Australia
China
Hong
Kong
India
Indonesia
Japan
Korea
Malaysia
New
Zealand
Philippines
Singapore
Taiwan
Thailand
UK
US
Composite Analysis for Asian Real Estate Securities Performance 1996-2005
Superior
average
monthly
return*
Lower
monthly
risk*
Superior
riskadjusted
returns*
Enhanced
portfolio
diversification
benefits**
Superior
riskadjusted
portfolio
returns
Enhanced
portfolio
terminal
wealth
2
2
2
3
2
2
2
2
2
3
2
2
2
2
2
2
2
2
2
2
3
2
2
2
2
2
2
2
2
3
2
2
3
2
2
2
3
2
2
3
2
3
2
2
3
2
2
2
2
2
3
2
2
2
2
2
2
2
3
3
2
2
2
2
2
3
2
2
2
2
3
3
2
2
2
2
3
3
2
2
2
2
2
3
2
2
2
2
3
3
*: Compared to shares
32
Table 8
Australia
China
HK
India
Indonesia
Japan
Korea
Malaysia
N Zealand
Philippines
Singapore
Taiwan
Thailand
UK
US
Australia
1.000
0.158
0.373
0.167
0.111
0.219
0.277
0.296
0.700
0.313
0.375
0.208
0.444
0.305
0.214
Australia
China
HK
India
Indonesia
Japan
Korea
Malaysia
N Zealand
Philippines
Singapore
Taiwan
Thailand
UK
US
Australia
1.000
0.227
0.399
0.010
0.102
0.211
0.318
0.289
0.695
0.432
0.379
0.210
0.509
0.138
0.125
Australia
China
HK
India
Indonesia
Japan
Australia
1.000
0.121
0.341
0.272
0.085
0.204
International Real Estate Securities Correlation Analysis
China
HK
1.000
-0.009
0.045
0.024
0.058
0.005
0.198
0.038
-0.016
-0.002
0.112
0.070
0.075
0.008
1.000
0.159
0.435
0.220
0.260
0.412
0.521
0.508
0.827
0.381
0.540
0.161
0.074
China
HK
1.000
-0.059
0.014
0.142
0.071
0.002
0.234
0.081
0.069
-0.016
0.102
0.171
0.060
-0.082
1.000
0.060
0.515
0.294
0.274
0.376
0.620
0.632
0.878
0.305
0.603
0.032
-0.082
China
HK
1.000
0.117
0.180
-0.161
0.097
1.000
0.340
0.197
0.116
Panel A: Correlation Matrix of Real Estate Security Indexes: JAN 1996 TO DEC 2005 (Full Period)
India
Indonesia
Japan
Korea
Malaysia
N Zealand
Philippines
Singapore
1.000
0.103
1.000
0.126
0.136
1.000
0.337
0.199
0.219
1.000
0.190
0.295
0.082
0.290
1.000
0.221
0.263
0.258
0.285
0.134
1.000
0.234
0.444
0.276
0.343
0.289
0.494
1.000
0.173
0.504
0.226
0.319
0.462
0.490
0.611
1.000
0.194
0.105
0.165
0.044
0.308
0.141
0.239
0.226
0.244
0.411
0.390
0.414
0.461
0.491
0.661
0.581
0.342
-0.124
0.144
0.072
0.077
0.192
-0.002
0.050
-0.108
-0.202
-0.078
-0.053
-0.014
0.154
-0.062
0.007
Panel B: Correlation Matrix of Real Estate Security Indexes: JAN 1996 TO DEC 2000 (Sub-Period 1)
India
Indonesia
Japan
Korea
Malaysia
N Zealand
Philippines
Singapore
1.000
0.041
1.000
0.089
0.205
1.000
0.250
0.236
0.435
1.000
0.102
0.317
0.085
0.286
1.000
-0.009
0.329
0.353
0.362
0.083
1.000
0.161
0.547
0.425
0.312
0.280
0.678
1.000
0.083
0.583
0.336
0.308
0.435
0.634
0.702
1.000
0.071
0.123
0.157
0.002
0.272
-0.009
0.253
0.239
0.117
0.473
0.504
0.454
0.448
0.538
0.728
0.663
0.273
-0.233
0.014
0.003
-0.020
-0.088
-0.042
-0.096
-0.379
-0.254
-0.243
-0.208
-0.078
-0.018
-0.040
-0.104
Panel C: Correlation Matrix of Real Estate Security Indexes: JAN 2001 TO DEC 2005 (Sub-Period 2)
India
Indonesia
Japan
Korea
Malaysia
N Zealand
Philippines
Singapore
1.000
0.132
0.112
1.000
-0.003
Taiwan
Thailand
UK
US
1.000
0.244
0.126
0.177
1.000
0.100
-0.022
1.000
0.205
1.000
Taiwan
Thailand
UK
US
1.000
0.150
-0.121
0.148
1.000
-0.014
-0.054
1.000
0.139
1.000
Taiwan
Thailand
UK
US
1.000
33
Korea
Malaysia
N Zealand
Philippines
Singapore
Taiwan
Thailand
UK
US
0.137
0.357
0.697
0.029
0.383
0.179
0.255
0.540
0.322
0.145
0.224
0.071
-0.129
0.071
0.194
-0.013
0.147
0.144
0.243
0.647
0.422
0.131
0.649
0.574
0.377
0.458
0.368
0.390
0.430
0.391
0.313
0.339
0.227
0.392
0.405
0.081
0.021
0.169
0.119
0.103
0.233
0.050
0.123
0.060
-0.150
-0.153
0.061
0.140
0.016
0.033
0.145
0.177
0.286
0.076
1.000
0.273
0.084
0.354
0.348
0.018
0.140
0.145
0.156
1.000
0.342
0.309
0.628
0.522
0.496
0.400
0.146
1.000
0.100
0.278
0.197
0.333
0.479
0.273
1.000
0.299
0.213
0.391
0.044
-0.123
1.000
0.241
0.262
0.398
0.224
1.000
0.399
0.368
0.194
1.000
0.342
0.004
1.000
0.282
34
1.000
Figure 1(a)
International Share Risk-Return Profile
Risk-Return Profile of Share
1.50%
India
Average Monthly Return
1.00%
Australia China
UKUSA New Zealand
Hong Kong
Taiwan
Japan Singapore
0.50%
0.00%
Korea
Malaysia
-0.50%
Indonesia
Philippines
Thailand
-1.00%
-1.50%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00% 12.00% 14.00% 16.00%
Average Monthly Risk
Figure 1(b)
International Property Stock Risk-Return Profile
Risk-Return Profile of Property Stock
2.50%
Average Monthly Return
2.00%
1.50%
1.00%
0.50%
0.00%
USA
India
UK
Australia Japan
New Zealand
China
Hong Kong Singapore
-0.50%
-1.00%
Taiwan
Korea
Philippines
-1.50%
Malaysia
Indonesia
-2.00%
-2.50%
0.00%
Thailand
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Average Monthly Risk
35
Figure 2
Rolling Correlations: Property Stock vs. Share/Bond/Cash
Property Stock/Share
Property Stock/Bond
Property Stock/Share
Property Stock/Bond
Property Stock/Share
Property Stock/Cash
J-05
J-04
J-03
J-02
J-01
J-05
J-04
J-03
J-02
J-01
J-00
J-99
J-98
J-96
J-05
-1
J-04
-1
J-03
-0.5
J-02
-0.5
J-01
0
J-00
0
J-99
0.5
J-98
0.5
Property Stock/Bond
Property Stock/Cash
Property Stock/Share
Property Stock/Cash
Property Stock/Bond
Property Stock/Share
J-05
J-04
J-03
J-02
J-01
J-00
-1
J-99
-1
J-05
-0.5
J-04
-0.5
J-03
0
J-02
0
J-01
0.5
J-00
0.5
J-99
1
J-98
1
J-98
Japan
J-96
Indonesia
J-97
J-97
1
J-97
India
1
J-97
Property Stock/Bond
Property Stock/Cash
Hong Kong
J-96
J-00
Property Stock/Share
Property Stock/Cash
J-96
J-99
J-96
J-05
-1
J-04
-1
J-03
-0.5
J-02
-0.5
J-01
0
J-00
0
J-99
0.5
J-98
0.5
J-97
1
J-96
1
J-98
China
J-97
Australia
Property Stock/Bond
Property Stock/Cash
36
Property Stock/Share
Property Stock/Bond
Property Stock/Share
Property Stock/Share
Property Stock/Cash
J-05
J-04
J-03
J-02
J-01
J-05
J-04
J-03
J-02
J-01
Property Stock/Bond
Property Stock/Cash
Property Stock/Share
Property Stock/Cash
Property Stock/Bond
Property Stock/Share
J-05
J-04
J-03
J-02
J-01
J-00
-1
J-99
-1
J-98
-0.5
J-05
-0.5
J-04
0
J-03
0
J-02
0.5
J-01
0.5
J-00
1
J-99
1
J-97
Taiwan
J-96
Singapore
J-98
J-00
J-05
Property Stock/Bond
J-99
-1
J-98
-1
J-96
-0.5
J-04
-0.5
J-03
0
J-02
0
J-01
0.5
J-00
0.5
J-99
1
J-97
Philippines
1
J-97
Property Stock/Bond
Property Stock/Cash
New Zealand
J-98
J-00
Property Stock/Share
Property Stock/Cash
J-96
J-99
J-96
J-05
-1
J-04
-1
J-03
-0.5
J-02
-0.5
J-01
0
J-00
0
J-99
0.5
J-98
0.5
J-97
1
J-96
1
J-98
Malaysia
J-97
Korea
Property Stock/Bond
Property Stock/Cash
37
Property Stock/Share
Property Stock/Bond
Property Stock/Share
Property Stock/Cash
Property Stock/Bond
Property Stock/Cash
US
1
0.5
0
-0.5
Property Stock/Share
J-05
J-04
J-03
J-02
J-01
J-00
J-99
J-98
J-97
J-96
-1
Property Stock/Bond
Property Stock/Cash
38
J-05
J-04
J-03
J-02
J-01
J-00
J-99
J-98
J-05
-1
J-04
-1
J-03
-0.5
J-02
-0.5
J-01
0
J-00
0
J-99
0.5
J-98
0.5
J-97
1
J-96
1
J-97
UK
J-96
Thailand
Figure 3(a)
Correlation of Asian Property Securities with the USA / UK
US/A ustralia
US/Japan
05
20
04
20
03
20
05
20
04
20
03
20
0.800
0.600
0.400
0.200
0.000
-0.200
US/New Zealand
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
05
20
04
20
03
20
20
02
01
20
00
20
99
-0.400
19
98
02
US/Korea
1.000
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
19
20
01
20
00
05
20
20
04
03
20
20
02
01
20
00
20
19
99
-0.600
20
-0.400
99
-0.200
19
0.000
19
0.200
98
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
-0.800
0.400
98
02
US/Hong Kong
0.600
19
20
01
20
00
20
99
19
19
98
05
20
20
04
03
20
20
02
01
20
00
20
99
1.000
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
19
19
98
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
US/Singapore
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
05
20
04
20
03
20
02
20
01
20
00
20
99
19
19
98
-0.600
US/Taiw an
39
1.000
05
04
20
20
03
02
0.400
0.200
0.000
-0.200
05
20
04
20
03
01
00
02
20
20
20
20
99
19
97
98
19
19
96
19
05
20
03
02
04
20
20
20
01
20
99
98
00
20
19
19
97
-0.400
-0.600
19
US/Malaysia
0.600
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
-0.800
0.400
0.200
0.000
-0.200
-0.400
-0.600
US/Philippines
05
20
04
20
03
02
20
20
01
00
20
99
19
97
98
19
19
96
19
05
20
04
20
03
20
02
20
01
20
99
98
00
20
19
19
19
97
-0.800
20
96
19
20
0.800
0.600
US/Indonesia
96
01
US/India
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
-0.800
-1.000
19
20
00
99
US/China
20
20
19
98
97
05
20
04
03
20
01
02
20
20
20
99
98
97
00
20
19
19
19
19
96
-1.000
19
-0.500
19
0.000
19
0.500
96
1.000
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
-0.800
US/Thailand
40
UK/A ustralia
05
20
04
20
0.200
0.000
-0.200
-0.400
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
05
20
20
04
03
20
02
20
01
20
00
20
19
99
-0.600
UK/Korea
05
20
04
20
03
20
02
20
01
20
00
20
99
19
19
05
20
20
04
03
20
02
20
01
20
00
20
99
19
UK/New Zealand
98
1.000
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
-0.800
1.000
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
-0.800
98
03
0.400
UK/Japan
19
20
0.600
0.000
-0.200
-0.400
-0.600
98
20
UK/Hong Kong
0.800
0.600
0.400
0.200
19
02
01
20
00
20
99
19
19
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
98
1.000
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
1.000
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
UK/Singapore
05
20
04
20
03
20
02
20
01
20
00
20
99
19
19
98
1.000
0.800
0.600
0.400
0.200
0.000
-0.200
-0.400
-0.600
UK/Taiw an
41
Figure 3(b)
Comparison of Correlation patterns for All Asian markets with the USA/UK
0.8
0.6
0.4
0.2
0
-0.2
-0.4
J98
M
-9
8
S98
J99
M
-9
9
S99
J00
M
-0
0
S00
J01
M
-0
1
S01
J02
M
-0
2
S02
J03
M
-0
3
S03
J04
M
-0
4
S04
J05
-0.6
US/New Zealand
US/Australia
US/Japan
US/Hong Kong
US/Korea
US/Singapore
J05
J04
J04
J03
J03
J02
J02
J01
J01
J00
J00
J99
J99
J98
J98
J97
J97
J96
J96
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
US/Taiwan
US/China
US/India
US/Indonesia
US/Malaysia
US/Philippines
US/Thailand
J05
J04
J04
J03
J03
J02
J02
J01
J01
J00
J00
J99
J99
J98
J98
J97
J97
J96
J96
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
-1
42
UK/China
UK/India
UK/Indonesia
UK/Malaysia
UK/Philippines
UK/Thailand
J05
J04
J04
UK/Singapore
J03
J05
J04
J04
J03
J03
J02
J02
J01
UK/Australia
J03
J02
J02
UK/Korea
J01
J01
J00
J00
J99
J99
J98
J98
J97
J97
J96
J96
UK/New Zealand
J01
J00
UK/Hong Kong
J00
J99
J99
J98
J98
J97
J97
J96
J96
J98
M
-9
8
S98
J99
M
-9
9
S99
J00
M
-0
0
S00
J01
M
-0
1
S01
J02
M
-0
2
S02
J03
M
-0
3
S03
J04
M
-0
4
S04
J05
0.8
1
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
UK/Japan
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
UK/Taiwan
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
43
Figure 4
Correlations of Property Security Indexes (PI) and Market Index (MI): Jan 1996-Dec 2005
1.000
0.950
0.900
0.850
0.800
0.750
0.700
0.650
0.600
0.550
0.500
0.450
0.400
0.350
0.300
0.250
0.200
0.150
0.100
0.050
0.000
-0.050
A ustralia
China
Hong Kong
India
Indonesia
Japan
Korea
Malaysia
New
Zealand
Philippines Singapore
Taiw an
Thailand
UK
US
Correlation of PI and Domestic MI
0.780
0.855
0.896
0.652
0.805
0.686
0.754
0.908
0.805
0.933
0.892
0.710
0.842
0.452
0.200
Correlation of PI and UK MI
0.510
-0.005
0.508
0.181
0.105
0.127
0.222
0.175
0.432
0.273
0.421
0.170
0.327
0.452
0.215
Correlation of PI and US MI
0.433
0.044
0.505
0.140
0.161
0.137
0.283
0.279
0.308
0.330
0.463
0.122
0.446
0.211
0.200
44
Figure 5
International Real Estate Securities Portfolios
Real Estate Securities Portfolio 1 (universe: All 15 markets)
Hong Kong, 0.000%
Australia, 14.888%
India, 0.469%
China, 9.019%
Indonesia, 2.198%
Japan, 5.009%
US, 45.271%
Korea, 0.000%
Malaysia, 0.552%
Philippines, 0.000%
New Zealand,
9.424%
Singapore, 0.000%
Risk=2.944%,
Return=0.284%
Taiwan, 0.000%
UK, 13.170%
Thailand, 0.000%
Real Estate Securities Portfolio 2 (Universe: US and All Asian markets)
Australia, 19.724%
China, 8.840%
Hong Kong, 0.000%
Indonesia, 1.964%
India, 2.997%
Japan, 6.404%
Korea, 0.000%
US, 50.996%
Malaysia, 0.698%
Philippines, 0.000%
Risk=3.013%,
Return=0.359%
Singapore, 0.000%
Taiwan, 0.000%
New Zealand,
8.377%
Thailand, 0.000%
Real Estate Securities Portfolio 3 (Universe: US and Asian developed markets)
Risk=3.177%,
Return=0.419%
Australia, 29.060%
Hong Kong, 0.000%
Japan, 7.478%
Korea, 0.000%
US, 53.223%
New Zealand,
10.239%
Singapore, 0.000%
Taiwan, 0.000%
45
Real Estate Securities Portfolio 4 (Universe: US and Asian developing markets)
Risk=3.188%,
Return=0.470%
China, 12.882%
India, 6.456%
Indonesia, 2.620%
Malaysia, 1.190%
Philippines, 3.810%
Thailand, 0.000%
US, 73.043%
Real Estate Securities Portfolio 5 (Universe: UK and All Asian markets)
Risk=3.570%,
Return=0.237%
Australia, 32.294%
UK, 25.681%
China, 15.907%
Thailand, 0.000%
Hong Kong, 0.000%
India, 0.000%
Taiwan, 0.000%
Singapore, 0.000%
New Zealand,
17.819%
Malaysia, 1.133%
Philippines, 0.000%
Japan, 6.496%
Indonesia, 0.670%
Korea, 0.000%
Real Estate Securities Portfolio 6 (Universe: UK and All Asian developed markets)
Risk=3.812%,
Return=0.420%
UK, 28.335%
Australia, 48.158%
Taiwan, 0.937%
Singapore, 0.000%
New Zealand,
15.288%
Korea, 0.000%
Hong Kong, 0.000%
Japan, 7.281%
46
Real Estate Securities Portfolio 7 (Universe: UK and Asian developing markets)
Risk=4.444%,
Return=0.252%
China, 23.378%
India, 0.000%
Indonesia, 2.182%
Malaysia, 3.169%
UK, 61.302%
Philippines, 9.969%
Thailand, 0.000%
Real Estate Securities Portfolio 8 (Universe: All Asian markets)
Singapore, 0.000%
Taiwan, 0.778% Thailand, 0.000%
Philippines, 0.000%
New Zealand,
19.530%
Australia, 48.449%
Malaysia, 1.478%
Korea, 0.000%
Japan, 9.971%
Indonesia, 0.000%
India, 1.620%
Hong Kong, 0.000%
Risk=3.862%,
Return=0.303%
China, 18.173%
Real Estate Securities Portfolio 9 (Universe: All Asian developed markets)
Singapore, 0.000%
New Zealand,
16.567%
Taiwan, 2.569%
Korea, 0.000%
Japan, 11.130%
Hong Kong, 0.000%
Australia, 69.734%
Risk=4.166%,
Return=0.483%
47
Real Estate Securities Portfolio 10 (Universe: All Asian developing markets)
Philippines,
19.655%
Thailand, 0.000%
Malaysia, 10.119%
Indonesia, 0.000%
China, 53.476%
India, 16.750%
Risk=6.345%,
Return=0.199%
48