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32 | Offshore banking
© Tan Wei Ming
because property companies are considerably tionable whether some companies will be able as the total number of trades carried out in
more leveraged than businesses in other sec- to pay out the large dividends implied by their each stock by Internaxx clients over the previ-
tors. The virtual collapse of credit markets led current valuations. ous year. This report is not a recommendation
to higher borrowing costs for property compa- In addition, the discounts to NAV implied to buy or sell these stocks.
nies, forcing them to downgrade their earnings by current prices are only as credible as the
guidance. This in turn put their share prices valuations of the properties the companies
Top 10 2008
under pressure. own. The lack of transactions in the underlying
Valuations certainly look appealing accord- direct markets provides little or no support for Top 10 Buy Top 10 Sell
ing to a range of metrics. The spread of divi- these NAVs. So in a market driven by senti-
dend yields over bonds as well as ment, fundamental long-term investors need to 1 Apple Apple
price-to-earnings multiples and discounts to approach all current valuation metrics with a 2 Fortis AIG
net asset value (NAV) are well below their his- degree of caution. 3 AIG Fortis
torical averages. The extraordinary negative We expect quality and balance-sheet strength 4 Citigroup Google
yield gap that prevailed in markets such as the to remain prevalent investment themes in 2009. 5 Axa Citigroup
UK during the spendthrift years of the proper- Companies with solid balance sheets will prob- 6 Dexia BNP Paribas
ty sector in general—between 2005 and 2007— ably find themselves in a position to start pick- 7 General Electric Alstom
has been replaced by healthy premiums over ing up bargains in the form of high-end assets 8 Lehman Brothers AXA
long-term government bonds. Equally, dis- or portfolios. Merger and acquisition activity 9 Bank of America Deutsche Boerse
counts to NAV in a range of markets across the may also start to resurface once banks regain 10 Arcelormittal Dexia
world are considerably below their historical their nerve. In the direct property markets, we
averages. expect values to continue to fall.
A key catalyst for listed property will be a The key for investors will be taking defensive DISCLAIMER
return of confidence in the credit markets. positions both within countries and within This document has been prepared solely for
When lenders open their doors again we sub-industries in companies that are valued informational purposes and does not
should start to see transactions in the direct realistically and which have high quality assets constitute an offer to buy or sell, or a
property markets underpinning share prices. that are less exposed to vacancies, payment solicitation of an offer to buy or sell any
An additional challenge will be the length and arrears and capital value declines in the direct security or financial instrument, or any
depth of the recession in Europe and the US. A markets. investment advice. Prospective investors
depression is certainly not priced into current should conduct such investigations as
share price valuations. Internaxx Top Ten buys and sells deemed necessary and should seek their
Moreover, while share prices may look –International Investors Activity own legal, accounting and tax advice to
attractive, investors still appear to think they summary from Internaxx determine independently of the suitability
are too good to be true. For example, it is ques- The 2008 Top Ten buys and sells are measured and consequences of an investment.
January 2009 Investment International
www.investmentinternational.com
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