Asia's rich seek euros for bargains in apartments, luxe hotels

[SINGAPORE] Stephen Diggle, whose Singapore-based hedge fund made a profit of US$2.7 billion in the depths of the global financial crisis, is visiting the small German town of Flensburg this week in a bet the euro's 12-month slide is almost over.

The euro's decline against every major Asian currency this year has unearthed real-estate bargains for investors from China to Malaysia and Thailand to Singapore. Mr Diggle's fund has already bought more than 1,200 apartments in Germany, including many in this town of about 90,000 people, four miles from the Danish border. He's planning to buy more soon.

"Europe is economically starting to recover from the seemingly endless slump, so there's also some sense that the euro won't be falling further and further against other currencies," Mr Diggle, chief executive officer of family office Vulpes Investment Management, said before his trip. "There's some incentive to act sooner rather than waiting."

Mr Diggle is just one of the wealthy Asia-based investors looking for bargains on speculation that Europe's single currency is bottoming out. Options prices suggest the euro may strengthen versus three of its eight most-traded Asian peers tracked by Bloomberg during the next year.

Cross-border property investment by Asians surged to US$8.6 billion in the first quarter, the most active start to a year since the region began a major push into overseas real estate in 2013, Los Angeles-based consultancy CBRE Group Inc said in a May 29 statement. Europe accounted for almost a third of that.

High-profile deals included the purchase of Frankfurt's 32- story Silberturm Tower - Germany's tallest building until 1990 - by a consortium led by Samsung Electronics Co's investment arm in January. Fosun International Ltd, part of China's largest closely held conglomerate, has spent about US$25 billion on overseas acquisitions since 2010, including buying French resort operator Club Mediterranee SA earlier this year, data compiled by Bloomberg show.

Simon Smiles, chief investment officer for ultra-high-net- worth individuals at UBS Group AG, said clients from China and Hong Kong are keen to snap up European assets such as hotels.

"The largest clients in particular are also very interested in buying trophy assets like luxury brands or hotels," said Mr Smiles, who started in UBS's Australian securities unit and now works in Zurich.

"In the near term, they think the dollar's going to appreciate, but they don't necessarily think the current strength will continue forever."

UBS ended a bet the euro will weaken against the US currency when the exchange rate was around US$1.11 in May, Mr Smiles said. It slid to a 12-year low of US$1.0458 in March and has since rebounded more than 7 per cent to US$1.1240 as of 9:22 am in London on Monday.

The euro has also started paring losses against Asian currencies, rebounding more than 8 per cent versus the Thai baht, Indian rupee and Malaysian ringgit in the past three months. Inflation in the 19-nation economy area turned positive for the first time in six months in May and economic confidence is near a four-year high amid optimism the European Central Bank's quantitative-easing program is starting to work.

ECB stimulus and the prospect of higher US interest rates are already "in the price" and "the bulk of the euro selling has been done," said Daragh Maher, a foreign-exchange strategist at HSBC Holdings Plc in London.

"There's been an excess of pessimism in the eurozone relative to the data and we're getting that shift in expectations now."

HSBC predicts the euro will weaken to US$1.05 by Dec 31, before recovering to US$1.08 in about a year's time.

Talks in Brussels between Greece and its creditors collapsed on Sunday, intensifying concern the indebted nation will run out of time to reach a deal to stave off default.

Asia's rich have been undeterred by Greece's struggles and are showing increased interest in European companies and real estate, said Noor Quek, who runs family-office adviser NQ International Pte in Singapore.

"People are cautious, and I wouldn't even say cautiously optimistic at this stage," she said. "Nevertheless, when an occasion presents itself when you get good value for money and you feel you can use that to have synergy in your group, you have to take a decision at some point."

Vulpes's Mr Diggle, a graduate of Oxford University who worked at Lehman Brothers Holdings Inc before co-founding a hedge fund, said his firm has been buying properties in Germany since 2009 but that it was now his top investment.

"Your US dollar, Singapore dollar or Chinese yuan buys you 15 per cent more property today than last year, and we thought they were a bargain last year," he said. "We continue to back it as our number-one trade."

BLOOMBERG