GLOBAL CURRENCY REPORT 2017 - Framework
RESIDENTIAL RESEARCHGLOBALCURRENCYREPORT 2017ANALYSING THE IMPACT OF CURRENCY MOVEMENTS ONPRIME RESIDENTIAL MARKETS AROUND THE WORLDOPPORTUNITIESGLOBAL CURRENCYMONITORIMPLICATIONS OFA STRONG USD
SUMMARYCURRENCY MATTERSCurrency market movementscan have a significant impact onthe flow of international capital intoproperty marketsIn global prime property markets even smallpercentage changes in currency can have significantmonetary implications.International buyers following await-and-see strategy in relation tothe UK market ahead of Brexit areadopting a high risk strategyBritish and Turkish investors sawthe opportunity to realise the bestreturns in key global cities in theyear to Q1 2017In Q1 2017 Ruble-denominatedbuyers found it 28% cheaper topurchase in prime central Londoncompared to a year earlier.Currency movements are importantto consider alongside fundamentalmarket indicators such as priceperformance and yieldSenior AnalystFIGURE 1Strength of the US dollarNominal broad effective exchange rate indexThe US dollar’s performance against key 05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17Source: Knight Frank Research, JP Morgan2However, individuals need to beconscious of the risks, as well as theopportunities, surrounding these.The volatility observed in currencymarkets over the last 12 months is acase in point.Does currencymatter?Fluctuations in currency markets canimpact demand for residential propertyfrom international buyers.To judge the strength of a country’scurrency relative to its peers we havelooked at effective exchange rates,rather than simply measuring onecurrency against another. This allowsus to see in which direction a particularcurrency is moving in comparison to aweighted average of a basket of othermajor currencies.TAIMUR KHAN130Currency, ownership costs and taxationare becoming increasingly importantconsiderations for investors, especiallyas the rate of price appreciation slowsin some global city markets.Between June 2014 and January2016, the US dollar appreciated by21%, making it more expensive forinternational buyers to purchase in theUS. In recent years the strong US dollar,has had a notable influence on nonresident purchases in the US.This link between currency andcrossborder transactions is underlinedby data from the National Associationof Realtors in the US which showsthat the appreciation in the US Dollarbetween 2014 and 2016 coincided witha 25% fall in non-resident propertypurchases across the US. Purchases byUS residents increased by 10% over thesame time period.Such data needs to be viewed from twostandpoints. Whilst appreciation can becostly, for those from abroad who alreadyown an asset in the US a strengtheningcurrency could be viewed as anopportunity to enhance returns by sellingand repatriating capital.Time to actInvestors may look to hold out for themost optimal time to buy or sell in anattempt to maximise purchasing power orpotential returns. However this strategycan be risky.The trading volume of the global forexmarket is estimated to be over 25 timesthat of global stock markets; this naturallyleads to volatility and therefore carriesrisk when deciding whether the exchangerate has reached a peak or trough.Interventions by Central Banks andpolicymakers in currency markets candevalue currencies.The Swiss Franc’s pegging and depegging against the Euro is a case inpoint. From 2009 the Swiss NationalBank (SNB) pegged the Franc to theEuro at CHF1.2/Euro. This resulted inthe Franc depreciating by roughly 7%against the majority of currencies from itspre-peg low.On 15th January 2015 the SNB depegged the currency without warning,causing the Franc to fall by 14.5% on theday. However, over the next two monthsthe Franc recovered, falling by roughly8% in comparison to the CHF1.20 peg; astark reminder that waiting for the bottomof the market can be a high risk strategy.To hedge against the impact of suchdevaluations buyers may look to investin currencies which have a negativecorrelation to their local currency.
GLOBAL CURRENCY MONITORKnight Frank’s Global Currency Monitor calculates real investment returns forinternational investors by combining changes in prime prices with currency shifts.Currency shifts in markets areunderpinned by several factors, the mostsignificant being economic fundamentals,political and geopolitical risks and futureexpectations. From a stuttering globaleconomic recovery to elections andreferendums, 2016 provided numerousevents of influence.Annual returnsFrom the perspective of an investorlooking to exit a market, British and Turkishhomeowners abroad have seen the mostsignificant returns over the last year, as aresult of currency movements.Sterling-denominated buyers who boughta prime property in Berlin in Q4 2015 andsold in Q4 2016 would have seen a 26%return and Turkish Lira-denominatedbuyers a 27% return. A Euro-denominatedbuyer would have realised a 9% returnover the same time period.Whilst currency shifts can be significant,it is important to keep in mind thefundamentals which underpin propertymarkets, these can be the most significantdrivers of performance.“ Whilst currency shiftscan be significant, it isimportant to keep inmind the fundamentalswhich underpin theproperty market.”Taking Berlin’s five year returns as anexample, of the six currencies that haveoutperformed the local market over the lastfive years, all have experienced suddenpolitical or economic upheaval. Theimposition of sanctions on Russia and therecovery in the price of oil has influencedthe Ruble. Uncertainty underpinned bypolitical instability (Malaysia and Turkey)and referendums (Turkey and the UK)have led to depreciations in thesecountries’ currencies.their capital could use these deprecationsas a method to enhance their returns.After these sharp depreciations, buyersdenominated in these currencies havebeen subject to a material fall in theirbuying power. On the other hand, existinginvestors who are looking to repatriateThe data digest on the back pageprovides additional city analysis onreturns across key markets taking intoaccount both currency and propertymarket performance.FIGURE 2Which nationality has seen the strongest return from a property in Berlin in the last five years?Based on prime price and currency movements in five years to Dec 2016160140%140135%5 Year % CHFCNYSGDEURGBPINRMYRAUDTRYRUB0Buyer-denominated currencySource: Knight Frank Research3
CURRENCY MATTERS 2017RESIDENTIAL RESEARCHOpportunitiesBelow we have identified the keyinternational buyers across six globalcities and highlighted the extent to whichcurrency shifts over the last year haveinfluenced buying power. In our selectedlist of global cities, international buyers% Discount from Q1 2016 to Q1 2017FIGURE 3in London had the best opportunity fordiscounts on a currency basis alonebetween Q1 2016 and Q1 2017. Aprominent example would be Rubledenominated buyers in London who in Q12017 would have found it 28% cheaper% Premium rom Q1 2016 to Q1 2017% Discount from Q1 2016 to Q1 2017Global Currency MonitorUNITED STATES (USD)UNITED STATES (USD)-11.6%-11.6%AUSTRALIACHINA(CNY) (AUD)AUSTRALIA (AUD)-11.7%-5.8%-11.7%INDIA (INR)-14.1%LONDONcompared to Q1 2016. Over the sametime period, Thai Bhat-denominatedbuyers in New York would have foundtheir acquisition 9% cheaper if theyhad bought in March 2017 comparedwith March 2016.EUROPEINDIA(EUR)(INR)-5.6%-14.1%% Premium from Q1 2016 to Q1 2017CHINA (CNY)BRAZIL 28.3%11.4%CHINA(CNY)BRAZIL(BRL)5.1%-20.2%EUROPE (EUR)LONDON-5.6%NEWYORKRUSSIA (RUB)RUSSIA (RUB)UK (GBP)UK (GBP)11.4%-24.9%NEW 0%-8.6%1.6%-24.9%TAIWAN (TWD-8.6%UAE (AED)-4.6%PAKISTAN (PKR)0.0%PAKISTAN (PKR)0.0%1.7%NORWAY (NOK)DENMARK (DKK)-1.8%DENMARK (DKK)1.7%EUROPE (EUR)INDIA (INR)-2.9%DUBAIDUBAI6.7%INDIA (INR)-2.9%UK (GBP)TURKEY (TRY)13.1%TURKEY (TRY)31.1%31.1%SWEDEN (SEK)5.4%DUBAIDUBAIEUROPE (EUR)GENEVAGENEVA6.7%RUSSIA (RUB)-22.7%UK (GBP)UK (GBP)SOUTH AFRICA (ZAR)13.1%6.3%AUSTRALIA (AUD)-0.4%KONGSource: Knight Frank ResearchEUROPE (EUR)SINGAPORE (SGD)3.1%7.8%RUSSIA (RUB)-22.7%MALAYSIA (MYR)13.2%6.5%SINGAPORE (SGD)3.5%KONGUK (GBP)13.3%RUSSIA (RUB)-19.1%UNITED STATES (0.2%SOUTH AFRICA (ZAR)CHINA (CNY)SYDNEY6.3%SYDNEYSOUTH KOREA (KRW)-1.8%EUROPE (EUR)SINGAPORE (SGD)3.1%-7.7%EUROPE (EUR)6.7%SINGAPORE (SGD)HONGHONGKONGRUSSIA (RUB)GENEVAGENEVA0.2%CHINA (CNY)HONGHONGKONG1.7%5.4%UK (GBP)UK (GBP)12.9%-7.7%AUSTRALIA (AUD)-0.4%EUROPE (EUR)SWEDEN (SEK)UNITED STATES (USD)12.9%-19.1%UAE (AED)-4.6%6.5%SYDNEYSYDNEY3.5%HONG KONG (HKD)0.4%UK (GBP)13.3%SOUTH KOREA (K-1.8%4
CURRENCY MATTERS 2017RESIDENTIAL RESEARCHOUTLOOKNumerous factors can affect a currency’s performance, below we outline someof the key risks and their potential impact.Risk MonitorHIGHESTRISK10987654321LOWESTRISKThe Risk Monitor provides our latest assessment of key risks to global residential markets. Our risk score, out of a maximum of 10, is based on twoassessments, firstly our view of the likelihood of the described scenario occurring, and secondly the potential market impact. Both these elements arescored from one (low) to five (high), collectively contributing to our combined Risk Score.POLITICALRISKIMPACTSlower thanexpectedeconomicgrowthPositive economic data from the US, Eurozone and Asia has surpassed expectations so far in2017. However, there are several factors which will underpin the stability of this recovery. Thepace of rate hikes, due to increasing inflationary pressure, may increase the cost of borrowing.Countercyclical fiscal policies could lead to a slowdown in employment and wages andinfluencing demand for prime residential property. This may slow lending, although higher ratesmay mean financial institutions are more willing to expand lending levels.French, UKand GermanNationalElectionsPopulist movements across Europe are contributing to uncertainty on a national level and inthe EU. However this threat has subsided given recent election results in the Netherlands andFrance. Any loss of medium-term confidence and divestment as investors look to de-risk, couldimpact on housing market activity.However, positive economic data in the EU and more stringent views on immigration byincumbent parties has reduced this risk to some degree and forced recoveries in currenciessuch as the Euro in recent gulation of theproperty marketand greatercapital controlsIn an effort to cool property markets policymakers have increasingly turned to regulation.The effectiveness of these regulations has always been a matter of debate; recentlyVancouver and Singapore have softened previously introduced property regulations. Suchpolitical interventions in property markets can severely influence investment.Increasedpoliticalinstability inRussia, theSyrian crisis andNorth KoreaGlobal tensions have continued to develop since the start of the year. Russia’s growinginvolvement in Syria and North Korea’s increased military rhetoric are moving up investors’agendas. These factors are important to global trade and resulting sanctions can have a knockon effect on trade routes, these could be detrimental to global economic growth and sentiment.RISK OODGLOBAL257257336235Ones to watchInterest rate hikes by the FederalReserve have contributed to astronger US dollar over the last year.President Trump’s proposed fiscalstimulus and tax cuts may furtherstrengthen the US dollar.The weak pound has attractedforeign investment into the UKand in 2016 this was further buoyed bybetter than expected GDP growth whichhas led to an improved long-run outlook.In 2016 the Yuan joined the USdollar, the Euro, the yen and theBritish pound in the IMF’s special drawingrights (SDR) basket, which determinescurrencies that countries can receive as partof IMF loans, seen as a major milestone.Monetary easing, fiscal stimulusand structural reforms, dubbed“Abenomics”, have been enacted tomanoeuvre the economy out of twodecades of stagnation. These policieshave weakened the Yen substantiallyover the last five years.Outcomes from the Dutch andFrench elections have stabilised theEuro as results provide long-term certaintyfor the Eurozone. Improving economicindicators in Southern European countrieshave also supported the Euro.Rising oil prices and therecovery of the Russianeconomy has underpinned the strengthof the Ruble. Loosening of sanctionsimposed on Russia may lead to furtherappreciation of the Ruble.5
KNIGHT FRANKINTELLIGENCEWhat does a strong US dollar mean forglobal property markets?Over the coming year, expansionaryfiscal policy in the US is expected tobolster economic growth. The IMFforecasts growth in 2017 to reach 2.3%,up from 1.6% in 2016. Combined withexpected interest rate hikes, this maylead to a stronger dollar.For buyers denominated in US dollarsthis will mean an appreciation in buyingpower. However, emerging marketdenominated buyers may findtheir buying power weakened due todepreciating currencies. As the FederalReserve enacts further hikes we maysee other central banks following suit,increasing the cost of borrowing bothin US dollar terms and in local markets.This could impact the demand fordebt-funded property purchases.For the latest news, views and analysison the world of prime property, visitKnightFrank.com/blogInternational property investments andportfolio diversification are some of themost important investment decisionsfor ultra-high net worth individuals(UHNWIs) according to KnightFrank’s Attitudes Survey. Portfoliodiversification ranks as one of thetop five most important factors forUHNWIs. Over the next two years32% of UHNWIs will look to investin prime residential property outsideof their country of residence. Whilstmovements in currency markets canbe important to overall returns it isimportant to consider these alongsidefundamental market indicators such asprice performance and yield, lacklustreperformance here can offset shifts inthe US dollar.RESEARCHLiam BaileyGlobal Head of Research 44 20 7861 5133liam.bailey@knightfrank.comTaimur KhanSenior Analyst 44 20 7861 1436taimur.khan@knightfrank.comPRESS OFFICEAstrid Etchells 44 20 7861 1182astrid.etchells@knightfrank.comFIGURE 4Relative change in prime prices allowing for property prices andcurrency movementsYear to Q4 2016LOCATION OF PROPERTY PURCHASECurrencyof buyerLondonAustralian Dollar-17.9%Swiss FrancsChinese %2.2%-13.3%7.0%5.6%1.2%12.3%8.7%3.0%-1.2%British n 5%19.8%14.9%Taiwanese Dollar-23.0%1.6%0.2%-3.9%6.6%3.2%-2.2%-6.2%US ian RinggitRussian RubleTurkish LiraSource: Knight Frank ResearchLocal market performance to Q4 2016 excluding currency movements* Hong Kong dollar is pegged to the US dollar.DATA DIGESTThe table above shows relative change in prime prices allowing for property price andcurrency movements. The currency and price data is to Q4 2016, unless otherwise stated.From the perspective of an international investor currently look to purchase, a negativefigure means purchasing prime property is cheaper compared to a year ago.For example an Australian buyer, denominated in Australian dollars, buying in PrimeCentral London would find it 17.9% cheaper in Q4 2016 compared to Q4 2015.The global currency monitor is part of Knight Frank’s wider country and city levelproperty database, for further information on this please contact Taimur Khan.Knight Frank Research provides strategicadvice, consultancy services and forecastingto a wide range of clients worldwide includingdevelopers, investors, funding organisations,corporate institutions and the public sector.All our clients recognise the need for expertindependent advice customised to theirspecific needs.Important Notice Knight Frank LLP 2017 – This report ispublished for general information only andnot to be relied upon in any way. Althoughhigh standards have been used in thepreparation of the information, analysis, viewsand projections presented in this report, noresponsibility or liability whatsoever can beaccepted by Knight Frank LLP for any loss ordamage resultant from any use of, reliance onor reference to the contents of this document.As a general report, this material does notnecessarily represent the view of Knight FrankLLP in relation to particular properties orprojects. Reproduction of this report in wholeor in part is not allowed without prior writtenapproval of Knight Frank LLP to the formand content within which it appears. KnightFrank LLP is a limited liability partnershipregistered in England with registered numberOC305934. Our registered office is 55 BakerStreet, London, W1U 8AN, where you maylook at a list of members’ names.
Based on prime price and currency movements in five years to Dec 2016 GLOBAL CURRENCY MONITOR Knight Frank's Global Currency Monitor calculates real investment returns for international investors by combining changes in prime prices with currency shifts. Whilst currency shifts can be significant, it is important to keep in mind the
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Currency Harvest was 15.22%. The Global currency harvest returned 12.07% and the G10 Currency harvest returned 8.02%. The Sharpe ratios for the Balanced Currency Harvest, Global Currency Harvest and G10 Currency Harvest over the period were 1.60, 1.23 and 1.07 respectively. (The returns are in USD terms
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A "convertible" virtual currency is a virtual currency that has an equivalent value in real currency, or acts as a substitute for real currency. It usually has a measurable value in real money and what makes it convertible lies in its ability to exchange for real currency based on its determinable value in the market.
ACCOUNTING 0452/22 Paper 2 October/November 2018 1 hour 45 minutes Candidates answer on the Question Paper. No Additional Materials are required. READ THESE INSTRUCTIONS FIRST Write your Centre number, candidate number and name on all the work you hand in. Write in dark blue or black pen. You may use an HB pencil for any diagrams or graphs. Do not use staples, paper clips, glue or correction .
