UK Property Market and the Impact from
Global Economy, Shocks and Global Events
Dr Savvas Savouri
October 2015
TOSCAFUND
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Some details...
• Just as with thunder and lightning, we have already seen some very sharp currency declines
across economies which are crucial providers of natural resources,
only over coming months we will hear what these have done to inflation on both sides of the
Atlantic; I am convinced the data will tell us loudly that a new wave of deflation is happening.
• Deflation – things becoming ever cheaper – leads to economic atrophy.
It paralyses consumption and it paralyses investment.
• Switzerland and Sweden already have them, and Andrew Haldane, Bank of England’s chief
economist has talked of the UK having them to:
They are negative interest rates.
• Whilst the UK will escape deflation, others across the developed world will not. Underlying why
we will escape will be rising real estate pricing, occupancy and rents.
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Some details...
• Not only is China not broken,
but the euro-zone is far from being fixed
• Recent exchange rate events have not simply made rate rises across the developed world less
likely,
they have opened up the prospect of further loosening indeed more QE
• The UK may sit geographically alongside Continental Europe,
its economy is however quite distinct,
• Just as Japan sits alongside China
but may as well be on the moon for the ultimate good it will bring it
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Appreciating currency change
0.009
0.17
100%
0.165
0.008
0.16
33%
0.155
0.007
0.15
0.145
0.006
0.14
0.005
0.135
0.13
0.004
Plaza Accord
(Sept ‘85)
Louvre Accord
(Feb ‘87)
IMF delays SDR
composition
(June ‘15)
0.125
0.12
0.003
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
$/Y
Japanese
yen per US dollar
4
$/CNY
(RHS) yuan
Chinese
per US dollar
Yuan per other currencies
Russian ruble per Chinese yuan
Indonesian rupiah per Chinese yuan
2,500
12
10
2,000
8
1,500
6
1,000
4
500
2
0
2002
2004
2006
2008
2010
2012
2014
0
2002
2016
Malaysian ringit per Chinese yuan
0.7
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
2004
2006
2008
2010
2012
2014
2006
2008
2010
2012
2014
2016
2014
2016
Brazilian real per Chinese yuan
0.7
0.0
2002
2004
0.0
2002
2016
5
2004
2006
2008
2010
2012
Source: Bloomberg, Toscafund
Yuan per other currencies
Iranian rials per Chinese yuan
Angola kwanza per Chinese yuan
6,000
25
5,000
20
4,000
15
3,000
10
2,000
5
1,000
0
2002
2004
2006
2008
2010
2012
2014
0
2002
2016
Norwegian krone per Chinese yuan
2004
2006
2008
2010
2012
2014
2016
Saudi Arabian dinar per Chinese yuan
1.4
0.7
1.3
0.6
1.2
0.6
1.1
1.0
0.5
0.9
0.5
0.8
0.7
2002
2004
2006
2008
2010
2012
2014
0.4
2002
2016
6
2004
2006
2008
2010
2012
2014
2016
Source: Bloomberg, Toscafund
China
120
600
Foreign
6 200
% share - From 2005 to June 2015 by area of destination
4
1
1.2
8.5
1 0.8
3
6.9
120
0.8
2.5
0.6
5.5
60
3 100
300
5.0
4.6
20.6
3.8
Trade
80 and International reserves
3.1
60
Overall physical & fiduciary ownership
0.4
2.9 2.9
2.7 2.7
2.4 2.3
2.2 2.1
1.5
0.4
1.9
20 40
1
100
1.7 1.7 1.7 1.7
1.5 1.5 1.5
1.3 1.2 1.2
1.1
0.9 0.9 0.9 0.8
0.8 0.7 0.7
0.6
0.5
0.2
0.5
7
Norway
Germany
Israel
Zambia
Guinea
Mozambique
South Africa
North…
Ecuador
Switzerland
Investments
France
2008
Iraq
2011
2011
Angola
Ethiopia
Vietnam
Argentina
Algeria
2010
2010
Singapore
International reserves
Italy
0 02005
2007
2008
2009
2005 2006
2006
2008
2009
2000
2002 2007 2004
2006
Annual
China Trade Surplus
Malaysia
Saudi Arabia
Venezuela
Kazakhstan
South…
UK
Russia
Indonesia
Nigeria
Brazil
Canada
MENA
Europe
East Asia
Australia
Sub-Saharan
0.1
USA
00
West Asia
20
1 0.2
Kenya
40
2
200
$ trillions
80 140
4
400
$ $trillions
$$billion
billions
billion
3.5
7.9
International reserves,
$ trillions$ trillion
180
100
500
5
160
1.2
4.5
1.4
Cumulative foreign investment
Mexico
9.8
investment by region
0
0
0
2012 2013
2013 2014
20142015*
201520162016
2012
2010
2012
2014
Cumulative
(rhs) (rhs)
International
reserves
Total
Source: The American Enterprise Institute and The Heritage Foundation,
Bloomberg, PBOC, Toscafund
Europe a very tangled web indeed
ICELAND
NORWAY
FINLAND
SWEDEN
ESTONIA
RUSSIA
LATVIA
DENMARK
IRELAND
UNITED
KINGDOM
LITHUANIA
RUSSIA
BELARUS
NETHERLANDS
GERMANY
POLAND
BELGIUM
UKRAINE
CZECH REP .
SLOVAKIA
LUX
FRANCE
AUSTRIA
SWITZERLAND
MOLDOVA
HUNGARY
SLOVENIA
PORTUGAL
CROATIA
GEORGIA
AZERBAIJAN
SERBIA
ANDORRA
SPAIN
ROMANIA
B&H
MONTENEGRO
KOSOVO
ITALY
ARMENIA
BULGARIA
FYROM
ALBANIA
TURKEY
GREECE
CYPRUS
MALTA
8
Source: Toscafund
Euro per other currencies
Turkish lira per euro
Ukrainian hryvnia per euro
4.0
35
3.5
30
3.0
25
2.5
20
2.0
15
1.5
10
1.0
5
0.5
0.0
2002
2004
2006
2008
2010
2012
2014
0
2002
2016
Swedish Krona per euro
2004
2006
2008
2010
2012
2014
2016
2012
2014
2016
Norwegian krone per euro
12.0
10.0
11.5
9.5
11.0
9.0
10.5
10.0
8.5
9.5
8.0
9.0
7.5
8.5
8.0
2002
2004
2006
2008
2010
2012
2014
7.0
2002
2016
9
2004
2006
2008
2010
Source: Bloomberg, Toscafund
Global economy; proximity versus propinquity
Perilous states
Deflation
Depopulation
Deindustrialisation
De-emphasised
Bear in a China shop
Ukraine
Migraine
Imperious state
2009 to 2013 (% change)
Japan
Germany
UK
-0.16
-0.5
2.3
Car exports to China
27
131
518
Students from China
3.5
11
47
Tourism from China
26
74
107
FDI (figure for 2013, $bn)
0.6
6.4
13
Population change
Sources: UN Population division, Japan Auto Association, SMMT, E&Y, Japan Tourism, German Federal Ministry of Education, ONS, JASSO, HESA, Toscafund
10
Global economy; proximity versus propinquity
Imperious state
Perilous states
Deflation
Depopulation
Deindustrialisation
De-emphasised
Bear in a China shop
Ukraine
Migraine
11
Source: Toscafund
Sterling per Euro
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2002
2004
2006
2008
2010
12
2012
2014
2016
2018
2020
Source: Bloomberg, Toscafund
Regional wealth (Real GDP /capita
2030
2020
2012
in £000s)
40 <
Aberdeen
35 – 39UK GDP
per capita (35.5)
30 – 34
UK GDP
25 – 29 per capita (29.1)
20 – 24 UK GDP
per capita (22.7)
15 – 19
14 >
Edinburgh
Glasgow
Newcastle upon Tyne
Leeds
Manchester
Man-Pool
Liverpool
Sheffield - Rotherham
Nottingham
Leicester
Birmingham
Bristol
Cardiff
Southampton
Port-Hampton
London
Brighton
Portsmouth
13
Source: ONS, Toscafund
Toscafund
Toscafund Asset Management LLP
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