00:00:11
so Emerging Market assets have
00:00:13
appreciated dramatically this year
00:00:14
across the board Emerging Market debt
00:00:16
emerging market stocks real estate is
00:00:18
this the beginning of a bubble is this a
00:00:20
bubble your your comment that there are
00:00:23
certain inherent attractive features
00:00:24
would indicate maybe not or at least not
00:00:26
yet uh what does the panel think about
00:00:29
where prices are
00:00:32
today Megan I think you have to look at
00:00:34
it in relative terms uh Russia for
00:00:37
example uh had a had a the equity Market
00:00:41
was off
00:00:41
80% uh e fixed income markets off
00:00:45
probably
00:00:46
50% um most of the activity that you saw
00:00:49
in those in those issues was was was
00:00:51
Russians buying back um their debt uh
00:00:54
corporates buying back their debt people
00:00:55
basically reallocating reallocating
00:00:57
their shares but you're seeing now 100%
00:00:59
revaluation is is really I I don't think
00:01:02
uh a bubble U I think you know the
00:01:06
question is what's next um and that's
00:01:08
the next step which is the money that's
00:01:09
coming in uh from institutional
00:01:11
investors who are basically leveraging
00:01:13
at lior plus 25 basis points is 50 basis
00:01:17
points right okay so that that's that's
00:01:20
the issue the issue is whether this hot
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money coming back into the market will
00:01:24
spur another bubble in the next wave
00:01:27
because what we're hearing in the in the
00:01:28
first quarter of 2010
00:01:30
there's several billion dollars that's
00:01:31
going to be coming into uh dedicated
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real estate in in in Europe uh dedicated
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Russia funds uh and that's definitely
00:01:39
going to put push up asset prices uh you
00:01:42
know another 30% if you read Goldman
00:01:44
Sachs I would tend to agree I think in
00:01:46
our Market there's been a lot of of
00:01:48
people asking this question and uh I
00:01:51
think when we look at how real estate
00:01:52
has appreciated in Eastern Africa a lot
00:01:54
of those demographic fundamentals do
00:01:56
tend to explain the the heat up in
00:01:59
prices
00:02:00
and uh with a with a slight slowdown
00:02:02
it's very easy to link you know what's
00:02:04
happening in the west with some of the
00:02:06
you know just some of the interlinkages
00:02:07
we have with d diaspora remittances and
00:02:10
and foreign exchange from tourism and
00:02:12
also our Horticultural industry and
00:02:15
commodities um so there's we we think
00:02:17
that uh speculation is quite minimal and
00:02:20
it has it has tended to be borne out so
00:02:22
what we've seen is a is a a slow down
00:02:24
not in in prices but just in price
00:02:26
growth that is you know moderate so so
00:02:29
think we it's quite stable and it's in
00:02:32
the place that it needs to be but as he
00:02:33
says the question is is what happens now
00:02:35
and are we going to see you know another
00:02:38
runup that might not be so the other
00:02:40
question though who's underwriting the
00:02:41
risk you know two years ago uh library
00:02:43
was at two and two and a half three 3% a
00:02:47
bank puts 300 basis points 350 basis
00:02:49
points on it and Loans the money to
00:02:50
Russia okay Bank says I need 300 basis
00:02:53
points to cover my risk uh 50 basis
00:02:55
points for this and and lior is is
00:02:57
properly valued okay so today the bank
00:02:59
needs needs 800 basis points or 900
00:03:01
basis points but who's really taking the
00:03:03
risk not the bank the government who's
00:03:06
basically underwriting library at 25
00:03:08
basis points and this is the problem
00:03:11
because people are are more than happy
00:03:12
with the money that they're going to
00:03:13
take but the they're you know it's it's
00:03:16
headed the wrong way it's a new Shadow
00:03:17
banking system funding everything right
00:03:19
yeah but the bubble idea also uh can be
00:03:22
applied at various points in time as too
00:03:25
much money shows up for something you
00:03:27
know I believe there was a bubble in
00:03:29
Indian land for example when too much
00:03:32
private Equity showed up uh and uh
00:03:35
there's uh there was a a bubble uh in
00:03:38
the uh Brazilian Home Building Market
00:03:40
when too much public Equity showed up we
00:03:42
don't need 19 publicly trade home
00:03:44
builders in Brazil um nicely that's uh
00:03:48
taken care of itself we've bought one
00:03:49
and others will be Consolidated as well
00:03:52
there is a bubble that's uh forming in
00:03:55
China because the government wants now
00:03:57
to push credit into the real estate
00:03:59
industry
00:04:00
well government uses the banks to do so
00:04:02
now there's land auctions government
00:04:04
controls all the land it's a speculative
00:04:07
Market it's impossible virtually we have
00:04:09
two home builders in China to accumulate
00:04:11
land uh on an economic basis that's a
00:04:14
bubble somebody just showing up in an
00:04:16
auction how do you define because the
00:04:18
interesting question is the domestic
00:04:19
versus the international market in terms
00:04:21
of how a bubble's created because a lot
00:04:22
of times you have a lopsided situation
00:04:24
where as you pointed out you have
00:04:25
private Equity coming in from foreign
00:04:27
investors who artificially push our
00:04:28
prices as locals just settling into that
00:04:30
right but then you have another
00:04:32
situation where there's there's a a
00:04:33
genuine dynamic in the market where you
00:04:35
have local investors and foreign
00:04:37
investors who are actually trading
00:04:39
trading assets which is which is which
00:04:41
can also be the perception of a bubble
00:04:42
but it's a lot more stable than a
00:04:43
situation that you described because
00:04:45
I've seen them both in Russia and I
00:04:46
think it's interesting because you know
00:04:48
before 1998 Russians were doing one
00:04:50
thing was selling and foreigners were
00:04:52
doing one thing which was buying and
00:04:54
then in 2000 everything switched around
00:04:56
and Russians were buying and foreigners
00:04:58
were selling well there's there used to
00:05:00
be quite a pejorative connotation to
00:05:02
Emerging Markets it used to be called
00:05:03
the third world right yeah and I think
00:05:05
it seems that there's a rethink going on
00:05:07
among serious investors about how much
00:05:09
of their portfolio how much opportunity
00:05:11
they ought to devote to the so-called
00:05:13
Emerging Markets versus the develop
00:05:15
Market but I think also you have to look
00:05:16
at the the amount of money that actually
00:05:18
circles into these economies which is
00:05:19
domestic money okay recycled through
00:05:21
offshore conduits which is called
00:05:23
Capital flight in some countries um and
00:05:26
and in Russia I would say that pre98 it
00:05:29
was 70% foreign money 30% domestic money
00:05:32
and I would say today it's the opposite
00:05:34
in the equity markets it's higher but in
00:05:36
the domestic uh real estate market and
00:05:38
things and the more substantive real
00:05:40
assets um the majority is is Russian
00:05:42
money coming back from
00:05:55
offshore
