Flight from risk hits real estate as well as bonds

It's not just gilt yields which get a safe asset boost.

Via Joe Weisenthal, an interesting research note from French bank Societe Generale [slightly edited for readability]:

Investors are turning to real physical assets like commodities and real estate in London and, it seems, anything that is not euro-related. London real estate and (in our view unjustifiably) the UK has largely continued to hold onto its "safe haven" status. London’s [real estate investment trusts] today trade at a nil discount to net asset value and have almost been accorded "gold status" with 2.0 per cent dividend yield (uncovered for some) where you can get a 6.4 per cent yield from real estate names on the continent (and a 17 per cent discount).

In other words, following similar logic to that outlined by Jonathan Portes, investors are fleeing from risky assets like the stock market, and turning instead to things with a relatively guaranteed base – like real estate.

Most of the attention has been focused on the effect this phenomenon has on Britain's gilts; not only Portes, but also Cormac Hollingsworth at Left Foot Forward, have addressed the fact that it is this flight from risk, not any particular "credibility", which lowers gilt yields. But the flight to safe capital has also skewed some other markets. Weisenthal picks out this chart, comparing the performance of the FTSE 100 to Great Portland Estates, one of the nine British REITs:

The divergence is clear from mid-April onwards. But it's not only REITs which are benefiting. We reported yesterday that house prices are up nationwide, driven largely by rises in London, and there are reports of increasing numbers of Greek and Spanish buyers in the capital. The London real estate market may be borked for some time yet.

The Shard; a symptom of London's booming real-estate market? Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Beware, hard Brexiteers - Ruth Davidson is coming for you

The Scottish Conservative leader is well-positioned to fight. 

Wanted: Charismatic leader with working-class roots and a populist touch who can take on the Brexiteers, including some in the government, and do so convincingly.

Enter Ruth Davidson. 

While many Tory MPs quietly share her opposition to a hard Brexit, those who dare to be loud tend to be backbenchers like Anna Soubry and Nicky Morgan. 

By contrast, the Scottish Conservative leader already has huge credibility for rebuilding her party north of the border. Her appearances in the last days of the EU referendum campaign made her a star in the south as well. And she has no qualms about making a joke at Boris Johnson’s expense

Speaking at the Institute of Directors on Monday, Davidson said Brexiteers like Nigel Farage should stop “needling” European leaders.

“I say to the Ukip politicians, when they chuckle and bray about the result in June, grow up,” she declared. “Let us show a bit more respect for these European neighbours and allies.”

Davidson is particularly concerned that Brexiteers underestimate the deeply emotional and political response of other EU nations. 

The negotiations will be 27 to 1, she pointed out: “I would suggest that macho, beer swilling, posturing at the golf club bar isn’t going to get us anywhere.”

At a time when free trade is increasingly a dirty word, Davidson is also striking in her defence of the single market. As a child, she recalls, every plate of food on the table was there because her father, a self-made businessman, had "made stuff and sold it abroad". 

She attacked the Daily Mail for its front cover branding the judges who ruled against the government’s bid to trigger Article 50 “enemies of the people”. 

When the headline was published, Theresa May and Cabinet ministers stressed the freedom of the press. By contrast, Davidson, a former journalist, said that to undermine “the guardians of our democracy” in this way was “an utter disgrace”. 

Davidson might have chosen Ukip and the Daily Mail to skewer, but her attacks could apply to certain Brexiteers in her party as well. 

When The Staggers enquired whether this included the Italy-baiting Foreign Secretary Johnson, she launched a somewhat muted defence.

Saying she was “surprised by the way Boris has taken to the job”, she added: “To be honest, when you have got such a big thing happening and when you have a team in place that has been doing the preparatory work, it doesn’t make sense to reshuffle the benches."

Nevertheless, despite her outsider role, the team matters to Davidson. Part of her electoral success in Scotland is down the way she has capitalised on the anti-independence feeling after the Scottish referendum. If the UK heads for a hard Brexit, she too will have to fend off accusations that her party is the party of division. 

Indeed, for all her jibes at the Brexiteers, Davidson has a serious message. Since the EU referendum, she is “beginning to see embryos of where Scotland has gone post-referendum”. And, she warned: “I do not think we want that division.”

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.