Asia well placed to weather current short-term volatility

HONG KONG: Asia is well placed to weather current short-term volatility, according to CB Richard Ellis Group Inc (CBRE) in their global ViewPoint report recently.

CBRE has analysed the implications for commercial real estate from the recent volatility in the global equity and capital markets, Standard & Poor's downgrade of the US credit rating and weak economic growth.

One of the key points in the report is that Standard & Poor's downgrading of the US government's sovereign debt was more a catalyst and not the fundamental cause of recent market volatility. It has encouraged a paradoxical move that sees investors buying and holding rather than selling US Treasury bonds.

Expectations for global economic growth have been downwardly revised but a recession is not expected. Worldwide, central banks remain committed to forestalling deeper economic decline by shoring up global liquidity.

Investors with a higher risk tolerance will look for opportunities in volatile markets while those who are more risk-averse may delay investment decisions.

In Europe, the influence of geography, asset quality and local market liquidity on investor demand and activity is reflected in investment trends apparent in the first half of 2011.

Investment has been driven by local or regional capital rather than other investment. Prices have reached aggressive levels, in some cases exceeding their 2007/8 highs. Demand remains robust but there is clear vulnerability to any major shift in investor sentiment due to lower global growth prospects.

"The real estate fundamentals in Asia have been relatively strong and if anything the challenge has been the scale of the supply pipeline in some markets, as developers seek to take advantage of strengthening demand," said Nick Axford, executive director and head of CBRE Research, Asia Pacific.

He further explained that the prospect of ongoing volatility and slower growth elsewhere would definitely impact the scale and timing of expansion plans in Asia which could potentially affect Asia's global hubs such as Tokyo, Hong Kong, Singapore and Shanghai which are most exposed to major global companies.

CBRE predicts that investors may be tempted to stay on the sidelines while the volatility exists but local investors may be less concerned.

There is no sign of any shift in investor confidence yet but it is said to be too early to judge if such a shift may be underway.

CBRE is the world's largest commercial real estate services firm (in terms of 2010 revenue) with more than 300 offices worldwide.