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23-Feb-2010

Confidence in real estate as an investment vehicle is high this year, particularly from institutional investors.

Better News for Global Investment

27 January 2010

Better news for the world economy comes in a moderately optimistic report from the International Monetary Fund (IMF). The news is particularly good in emerging markets such as China, India, Russia and Brazil, proving that investment in these countries is well placed.

The latest IMF World Economic Outlook (WEO) finds that the "world economy is bouncing back" although the IMF is quick to point out that emerging markets are the engines pulling the globe out of its two-year recession. The IMF has revised its world GDP growth figures upwards. The prediction for this year now comes in 3.9%, a 0.8% increase on the previous IMF prediction made in September.

But this relatively high growth rate - particularly in the context of negative GDP in 2009 - is not uniform throughout the world. Emerging market economies are almost three times ahead of the advanced economies. Countries such as Indonesia, Brazil and China have an expected combined growth of 6% this year and 6.3% in 2011. Compare this to the 2.1% increase forecast for those countries in the advanced group.

The IMF describes the growth in emerging markets as "relatively vigorous". According to Olivier Blanchard, the IMF's Chief Economist, major emerging economies are "doing extremely well". Regarding the future for China, India, Brazil and the like, Mr Blanchard believes "private demand can come and consumption can easily increase".

Investment - both public and private - in emerging markets has been strong over the last 12 months. Countries such as China have seen huge public spending to stimulate its economy. The results speak for themselves - China's GDP increased by around 9.5% last year and the IMF predicts a 10% growth rate this year.

Investment in Brazil has also been booming. Massive public investment is taking place in infrastructure and on a private level; investment in Brazil has been huge in the stock exchange, companies and real estate. Brazil, China and India have the advantage of large populations, which are providing a substantial percentage of the all-important "private demand".

Mr Blanchard believes that the global recovery is "multi-speed" and he divides the world economy into three classes. In one are the advanced economies (e.g. the US, the euro zone and Japan) where he says "recovery is there but weak". A glance at the IMF predictions for 2010 confirm this - only Canada and the US are expected to gain over 2.5% in GDP this year with most of Europe coming in at under 1.5%. Spain is not even expected to leave recession during 2010.

The next group encompasses major emerging markets. Here, China tops forecast GDP growth and the IMF expects 7.7% for India, 4.7% for Brazil and 3.6% for Russia. These figures are significantly higher than the previous September predictions. India has increased by 1.3% and Brazil by 1.2%.

The IMF's third group is made up of "countries paying for past excesses". These include advanced economies (e.g. Spain, Portugal and Ireland) and emerging markets such as the Baltic States and Hungary. Mr Blanchard is pessimistic over the future for this group and states that "even if there had been no crisis, they would still be doing badly". Since this group contains some perennial favourites for overseas property investment, this analysis is far from encouraging.

Obelisk believes that the latest WEO brings a welcome dose of optimism to investment. It also adds weight to the Obelisk conviction that emerging markets hold the most promise for those planning any type of investment -property, commodities, stock and shares etc. Emerging markets are undoubtedly the place to put your money.

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