Thinking man's response - not mine - to FT short view on prime values wavering

Monday, January 21, 2013 by Ed Mead

Stephen Yorke, CEO of D&G Asset Management applies a thinking man's respose to a well thought out and argued short view video in the FT last week by James Mackintosh........he writes.....

 

In Friday’s FT James Mackintosh said in his “ Short View “ that he thought that, as sterling/the UK lost its attractions as a  “ safe haven “, London residential property prices would fall . 

 I am not sure that we agree as our Research shows ( see footnote )   : 

  • There is long-standing correlation between sterling weakness and rising Prime Central London ( PCL )  capital values ;
  • PCL forms part of the asset allocation  of many global High Net Worth’s  ;
  • Following major sterling depreciations non-£ investors step in to buy PCL leading to PCL capital values rising  ;
  • A rise in sterling does not prompt these same investors to exit  PCL  ;
  • PCL is an effective hedge against sterling devaluations for domestic investors ;
  • Investors using sterling as a pure “ safe haven “ currency play would have more likely used a liquid asset class like the currency itself or Gilts ;

 Our 2013 Forecast is : 

  • Further QE from Bank of England ;
  • Gilt yields to remain very low ( around 2% on the 10 year ) ;
  • Sterling to weaken ( in line with James’ view that UK will not be seen as a “ safe haven “ currency and/or Gilt play ) vs. both the US$ and Euro ;
  • PCL capital values to rise between 5% and 10% ( risk is  closer to 10% ) ;
  • For US$ or Euro investors PCL to have a flat year . 

Summary : As sterling falls through 2013 so PCL will continue to see capital values rise in line with the long term trend of between 5% and 10% . Other forecasters ( Savills and Knight Frank ) are predicting a 0% year for PCL . 

Footnote : See www.primelondoncapitalfund.com and www.dngam.com