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Credit Suisse’s Strobaek: US property set to shine

Credit Suisse’s Strobaek: US property set to shine

The US real estate market is underestimated and its discount to value is unjustified.

This is according to the latest note of Michael Strobaek, global CIO of Credit Suisse, who said the firm had moved towards neutral exposure to the asset class following recent weakness.

‘With earnings expectations firmly below their long-term average and net revisions positive for the first time since July 2017, earnings should surprise positively from here, lifting share prices.’

He added that it is difficult to predict the impact of tax reform on the US property market, but it is likely to have positive effect on retail real estate in particular.

Generally, the asset manager says global real estate share prices haven’t caught up with the economic reacceleration.

Strobaek added that the asset class is attractive based on its embedded cyclicality, relatively high dividend yields and muted interest rate sensitivity.

‘A potential repricing associated with global monetary policy normalization is a risk, but elevated yield spreads, rising earnings and improved debt structure add to the potential resilience.’

Hungry for risk

Overall, the asset manager says the steady rally of the markets led his team towards an equities overweight.

‘Our positive tactical view leaves us comfortable with this drift, and we would indeed add to risk positions, including industrial companies, real estate equities and unhedged EM local currency bonds, on our expectation that the global market rally can continue into the new year.’

Strobaek currently expects eurozone, Swiss, Japanese and Australian equities to outperform with conviction on Japan based on its strong earnings numbers.

CIO said there is weakness in EM local currency bonds currently, which provides an opportunity to add attractive yield to portfolios.   

‘We also favour adding EM currency risk at the same time, as currency fundamentals are improving as well and the currency risk premium in the form of the cost of carry appears attractive even if currencies are stable only in aggregate.’

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