Double or nothing: investments to swim against the tide

 Time to go long the Aussie, then? Michael Blythe, chief economist at the Commonwealth Bank of Australia, says the Aussie “tends to suffer during periods of heightened risk aversion. It also acts as a barometer of global growth concerns.” He calls a further fall to 59 cents by early 2009, with a strengthening towards 73 cents by the end of next year as concerns about the global economy ease, or at least gain clarity. “Longer-term, we think that a structural lift in the Australian dollar is underway.”

• PROPERTY TRUSTS

Market capitalisation of A-REITs declined 58.6%, from A$147 billion to A$61 billion, in the year to October 2008 – back to 2003-4 levels

“We’re loving this market at the moment,” says Stephen Hiscock of property fund manager SG Hiscock & Co. “We are being given a once-in-a-cycle opportunity to invest huge amounts of money into good companies that aren’t going to go broke, and we are able to get these things at 9, 10, 11% yields,” he says. “The value in GPT, in Stockland, in Mirvac is just stunning.”

Hiscock wants to be clear he’s not yet calling the bottom. “I am definitely not predicting the end of the credit crisis. In fact I think there’s more difficulty to come,” he says. “But the current pricing of the sector, excepting Westfield, is implying that property prices will fall 34% in value.” And he doesn’t see things getting that bad.

He notes a disconnect between the two stocks that A-REIT investors seem to be regarding as safe havens, Westfield and CFS Retail, and the rest, “where the real opportunities are.”

“This is the cheapest the sector has been since it started 30 years ago, in a discount sense,” says Hiscock, who puts it at a 17% discount to net asset value. “It’s beaten up, it’s lost credibility, and that’s the exact time investors should be looking at an asset class.”

• CHINA

The CBN 600 index is down 64.6% year to date (as of November 25 close) – the second worst performing major world equity market after Russia.

You will recall a year ago that all the talk was of how emerging markets, and Asia in particular, were so strong now they would be immune to a slowdown in the US. Well, look at it now: after this week’s rallies the Dow Jones Industrial Average was down 36.4% year to date by Tuesday, and the DJ Asia Pacific index 46.9%. Hong Kong, India, Indonesia, Singapore and Thailand have all more than halved so far this year.

And China has been the worst of them. Sure, it’s growing at more than 8% a year in GDP terms, but that’s not helping its stock markets, which boom and bust like no other.

It can be hard to think in terms of a slowdown in a country growing so fast: the worst case is still dramatically better than in any developed country in the world. “While China is slowing significantly it’s unlikely to have a hard landing, which given China’s potential growth rate of around 8 to 10% and need to find jobs for roughly 10 million rural workers each year would mean growth of around 5%,” says Shane Oliver at AMP Capital Investors. But what about shares? Oliver says Chinese shares are looking attractive from a long term perspective, and Australia-based Asia fund managers such as Peter Sartori at Treasury Asia Asset Management are actively buying Chinese stocks.

AMP itself offers the only way Australian investors can get exposure to China’s local A share markets, through a listed investment company called AMP China Growth Fund. Aussie funds that invest in H-shares – Chinese stocks listed in Hong Kong – include products from Aberdeen, Fidelity, Challenger and Premium.

• A HOUSE IN LONDON

Gauges of Greater London house prices vary. The Halifax House Price Index for the third quarter suggests a 16.5% annual fall; Nationwide says 9.4%, the Land Registry 6.1% and the Communities and Local Government House Price Index 5%.

If you think the mood is bleak in Sydney or Melbourne, go and spend a week in London. Bank collapses, mass redundancies, house price falls – and of course the weather. More and more people are talking about donning the tin hat and growing turnips in the garden until it all goes away.