Japan’s Sun City once highlighted to foreigners back in 2008 that it was ‘puking property inventories’ when it was running into difficulties after Lehman collapsed. The irony of the English was that it was indeed the message they were aiming for but somehow were probably better off using less ‘sensational’ language. Now three UK managed property funds- Standard Life, Aviva and M&G – are preventing retail redemptions for at least 28 days.
Whether the underlying assets (on their own) are low risk is beside the point. When liquidations get beyond the norm, meeting cash requirements with illiquid portfolios becomes tough. Then it is a chicken egg argument of how much property needs to be sold to meet requirements of redemptions. If LTVs are at 50% then falling property values will force the potential for further capital raisings to satisfy possible lending requirements leading to dilution and further selling. It can get ugly quickly. If any of us were ‘shut out’ from accessing our hard earned assets that just triggers sleepless nights. Indeed JP Morgan wisely told us we “should sell to the sleeping point”
As I have been droning on for a long time, markets are unable to reach natural support levels. We saw the BoE step into support markets after Brexit. With so much manipulation in the financial system, things like this are less able to be protected and as a result we get a truer picture of how brittle investor sentiment is.