Thursday, June 12, 2008

Why UK property could be China’s next dud investment

Why British property could be China’s next dud investment

HBOS is pressing on with its rights issue despite the turmoil in the markets. With much of the company likely to end up in the hands of underwriters, could a Chinese sovereign wealth fund be tempted?

Posted by damien @ 12:46 PM (507 views)
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2 thoughts on “Why UK property could be China’s next dud investment

  • montesquieu says:

    There’s quite a literature on the dud investments made by Japan when it was rolling in it in the years up to 1989. I was at a lecture recently where a business historian gave a paper on how China was making exactly the same mistakes.

    These include randomly spreading money around with no apparent strategy, failing to put governance to ensure their investments were protected, and making assumptions that if they left managements in place (sometimes competent, sometimes not) that they would act in the shareholders’ interests and not in their own. There was also an element of naivety that when managers blamed lack of investment for poor performance, they were believed (and often given money to go and make things work). The Chinese are repeating all of these mistakes and more, it seems.

    Much of this money isn’t sovereign wealth funds, it’s being invested by Chinese companies and wealthy individuals and a lot these investments are already turning sour. B&B – if they can buy it cheap enough – might be a better option than some past investments.

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  • Governments always make bad investment decisions. Gordon Brown sold our gold at its nadir between 1999 and 2002; recently he talked about buying up the houses that builders can’t sell (because they’re overpriced) and using them as social housing. Governments only stop making bad investments when they run out of money; that’s the only thing stopping Brown.

    Institutional investors (pension funds etc.) perform poorly too, although not as badly as governments. In general the stronger the accountability and the smaller the investment organisation, the better the performance.

    We can expect to see a lot more of this over the coming years. The OPEC countries will be flush with cash and will buy up assets around the world. The big question is, how will the formerly-rich countries feel about handing over a large chunk of their profits to overseas owners?

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