A second wave of global money is on the way, and this one could be even bigger than the first!
Another tidal wave of money is already forming on the horizon.
Even as the surge of Chinese buying gathers pace, doubling in the past year. Another wave of money is already forming.
And it’s not Indonesian or Malay or Singaporean buyers – though those guys are getting active too. It’s not Europeans or Americans either.
In fact, it’s not private buyers at all.
Not directly though. I’m talking about public money managers – central banks, sovereign wealth funds and state pension funds.
All governments invest for the future. They take the riches of momentary commodity booms – Norway, Saudi Arabia etc. and put some away for future generations. Or their pension funds invest now to cover their obligations in the future.
Governments need relatively safe places to invest and they need decent returns. They all do.
So who you gonna call?
The Official Monetary and Financial Institutions Forum (OMFIF – such a catchy name!) surveyed the world's 500 biggest public sector institutions in 180 economies, and controlling US$29.7 trillion of funds.
What they found is that that almost half of the investors plan to increase property and infrastructure holdings – adding to their property books by more than for any other asset class.
That’s a lot of money hungry for property.
And we’re in the firing line. According the OMFIF, public institutions believe they will get the best returns from the Asia-Pacific over the next five years, with 43 per cent ranking the region top choice.
But Asia-Pac is both the destination and the source. In terms of asset growth, Asia-Pacific sovereign wealth funds overtook the Middle East for the first time as the biggest pools of sovereign capital on the planet.
This is the Asian Century.
And when we’re talking Asia of course we’re talking China.
The People's Bank of China remains the world's single biggest holder of public assets, controlling US$3.9 trillion in total reserves,
So we’re talking big big money – and Australia, with one of the best performing property markets in the world, located within one of the world’s most advanced and stable economies – is going to be a prime target.
Here comes the money.
And remember, where the public money goes is important. Often public funds act as an ice-breaker, forging paths into new markets, or giving particular markets the official tick of approval.
Knight Frank’s Dominic Ong, senior director of Asian markets, explains it like this:
“What first started as sovereign funds making exploratory investments has proliferated into buying sprees by Chinese developers, banks, Ultra High Net Worth Individuals (UHNWIs) and institutional investors, such as insurance companies.
“By 2020, authorities estimate that the Chinese insurance industry will accumulate a further RMB20 trillion worth of premiums, tripling the current pool size.
“This current wave of equity investors and insurance firms are seeking core, value-add and yield-driven opportunities.
“Among the big-cap players, only four of the top 10 Chinese insurance companies have made offshore investments so far, although the remaining six are considering overseas expansion.
“For Chinese investors in the Australian market, the gateway cities – namely Sydney and Melbourne – have been the most active market for Chinese investors.
“The next wave of Chinese investors are diversifying more and broadening to areas such as Brisbane, Adelaide, Gold Coast, Perth and metropolitan suburbs of NSW and Victoria, which will all start to gain more traction.”
The current boom in Chinese buying we’ve seen in Sydney and Melbourne was led by Chinese government wealth funds. Private investors followed in their wake.
And now the public money is exploring further, pushing into other capital city markets. Again, where the public money goes, private investors will follow.
But again, this isn’t just a China story. The whole world is on the hunt for yield, and if not yield, at least something safe that’s not too shabby.
Because the world is awash with cash. And the water-level is only rising. The US and Japan have had massive money printing operations, but now you can add to that Europe and China.
That has two effects. First it drives up the price of assets – more money competing for the same amount of securities. The US market is at record highs. And take a look at the Shanghai stock exchange over the past two years.
Second, it drives down yields. You don’t need to pay much of a return when funds managers are just looking to throw money at you.
And since all markets are connected, the price inflation, yield compression happens to every asset.
Just look at property. Prices are up, but rents are not rising as quickly. Yields have fallen.
Australian property is totally driven by what’s happening on global markets.
And right now, global markets are flooded in cash.
It was a China-story, but it’s quickly going global. Saudi Arabia has a huge amount of funds under management. They’ll be having a good look at the performance of our markets.
And you, you’ve got an advantage. You’re already located here. You can buy whatever you want. There no restrictions on what you can get into.
Start thinking like a global investor and seeing the market through a global investors eyes. The opportunities are amazing.
Surf’s up, dudes. Surf’s up.
Will the second wave of money tip us over? Are we too small to handle it?
Which second wave cities – Brisbane, G.C, Perth and Adelaide – look best to you?