Our pick of headlines this week impacting commercial real estate in the emerging markets.
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Headlines:
Global
Canada's pension funds, holding a 10% to 15% real estate allocation compared to the global average of 5-8%, were early adopters of international real estate investments. Their success spurred similar strategies among other pension funds worldwide. However, recent reassessments of their holdings, particularly due to underperformance like Quebec's CDQP's 7.2% return in 2023, have sparked concerns about the model's future. A downturn in Canadian foreign real estate investments could have a domino effect, impacting the global real estate market and influencing the strategies of other pension funds which have an estimated $40 trillion in assets.
Market expectations of swift Federal Reserve rate cuts might be premature according to Apollo's Torsten Slok. Citing data like surging GDP growth forecasts, record stock market highs, tightening credit spreads, and resurgent M&A activity, Slok argues for persistent inflation and robust economic growth, potentially delaying cuts. He emphasizes the risks of premature rate cuts reigniting inflation, aligning with the Emerging Real Estate Digest's 2023 prediction of initial cuts followed by potential hikes. Referencing the 1974/75 historical parallel, Slok suggests the Fed might maintain its current stance longer than expected, impacting economic forecasts and investment strategies.
Also Alec Baldwin’s best scene of his career. Motivation to stay strong in a bumpy 2024. #SurviveUntil25
Latin America
In a move with significant geopolitical ramifications, the US is escalating concerns over potential exploitation of the USMCA trade agreement by Chinese automakers in Mexico. This multi-billion dollar industry, crucial to both nations' economies, faces unprecedented scrutiny due to national security fears. The White House, citing risks like sensitive data collection and control of connected vehicles, is pressuring Mexico to address these issues before the 2026 USMCA renegotiation. This high-stakes situation could lead to revised trade agreements or even the potential termination of the USMCA, raising questions about the future of US-Mexico automotive collaboration and the broader global trade landscape.
A January 2024 report by the Miami Association of Realtors reveals Colombia as the top searcher of South Florida real estate, holding the top 2 positions for 23 consecutive months. This surge coincides with the presidency of Gustavo Petro, who was elected May 2022, and inaugurated August 2022, sparking questions about potential connections. Public sentiment in Colombia aligns with this trend, with a recent poll showing 62% believing the national economy is on a downward trajectory, compared to 38% before the election. The Colombian peso depreciated by 15% against the US dollar since Petro took office which hasn't helped and is one factor that may be driving Colombians to seek alternative investments such as real estate in Miami.
Brazil's economic outlook confronts formidable hurdles amidst decelerating growth and soaring inflation rates. Following a narrow escape from recession in 2023, where GDP merely reached 2.9%, the economy now grapples with successive quarters of diminishing consumer spending and confidence. Persistent inflation poses a significant threat, potentially triggering capital flight and necessitating rate hikes in 2024. The ongoing political persecution of former President Bolsonaro compounds citizens' frustrations, exacerbated by dwindling purchasing power. President Lula's ambitious $200 billion infrastructure initiative encounters substantial funding challenges, with doubts lingering over China's capacity to finance such a colossal endeavor. Moreover, apprehensions loom regarding the lingering specter of Lula's past corruption scandals, potentially impeding consensus-building for raising and deploying the capital.
Africa
Africa's data center market is projected to experience significant growth, with a forecasted Compound Annual Growth Rate ("CAGR") of 10.2% from 2022 to 2028. Equinix, a California-based company listed on Nasdaq, has announced a $390 million investment over the next five years aimed at constructing data centers in South Africa and exploring opportunities in East Africa. This commitment follows Equinix's acquisition of MainOne for $320 million in 2021, along with a subsequent $160 million investment in South Africa.
Pepkor Holdings, a leading retail group, divests its stake in TBCo to Capitalworks Private Equity for $62.4 million (i.e., ZAR 1.2 billion), pending regulatory approval. This strategic move reflects Pepkor's focus on consolidating its core business segments. TBCo is a significant player in South Africa's DIY and timber market and thus provides Capitalworks a good foundation to grow the business and take on the more established players of Builders Warehouse and Cashbuild.
Southeast Asia
Vietnam, accounting for 27.12% of the MSCI Frontier Markets Index as of January 31, 2024, seeks an upgrade to emerging market status, aiming to attract up to $25 billion in stock market investment by 2030. While the transition promises benefits like increased market liquidity and foreign capital inflows, challenges remain, including same-day settlement procedures hindering foreign investor participation and industry-specific foreign ownership caps. Addressing these concerns and implementing reforms are crucial for Vietnam to convince relevant organizations of its readiness to join the ranks of established emerging markets.
Bilateral trade between Thailand and Vietnam has surged, surpassing $20 billion annually, making Thailand Vietnam's leading trading partner within ASEAN. Outside of ASEAN, Thailand is Vietnam's 9th largest foreign investor having invested $1.4 billion in 2023, according to data from the Ministry of Planning and Investment of Vietnam. As the Western nations continue to decouple from China, and rely less and less on Asian manufacturing, Asian nations will benefit from advancing regional trade, cooperation, and investments.
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