By Jonathan Yates
With Moody's issuing a blanket downgrade for the Spanish banking sector, JP Morgan (JPM) looking at a potential $5 billion in trading losses, and the MSCI European Financials ETF (EUFN) close to a 52-week low (again), emerging market investors might be leery of approaching any stocks in the real estate construction sector.
That would be a mistake. Companies that have survived the Great Recession are most likely here to stay. In addition, businesses focusing on emerging market real estate will not suffer as much from euro zone travails as EUFN, for example.
That uber-investors like Jim Rogers and Sam Zell are heavily involved in emerging market real estate should also be an impetus. Most importantly, Federal Reserve Chairman Ben Bernanke is commited to revitalizing the global real estate market.
Exchange traded funds with exposure to emerging market real estate sectors such as the SPDR International Real Estate (RWX) and Wisdom Tree International Real Estate (DRW) are very attractive for growth, income and equity investors.
Buying shares in a real estate investment trust offers a number of advantages for emerging market investors. There is more diversity in holdings. Dividend payments are high - over 4% each for RWX and DRW, and the research resources of an exchange traded fund are greater than those of an individual investor.
There have been two grave miscalculations since 2007 by all - even billionaire financiers such as Sam Zell and Jim Rogers.
One was underestimating the global real estate crisis. In the spring of 2007, Federal Reserve Chairman Ben Bernanke famously remarked that it would be short-lived and mild. That the entire banking sector of Spain was just downgraded, mostly due to bad real estate loans, is proof of the level of underestimation. Sam Zell is looking at huge losses in Brazilian real estate as a result.
The other has been the involvement of central bankers around the world to protect the financial system. The market role of the Federal Reserve under Ben Bernanke and other central bankers has been unprecedented, particularly in quantitative easing measures designed to maintain a low interest rate environment and recapitalize the private banking system. That has undoubtedly resulted in losses for Jim Rogers due to his bearish holdings.
For emerging market real estate investors it should instill confidence that global central bankers will do whatever they have to in order to rescue the market. As a result, ETFs like RWX and DRW are likely to gain with the rebound in emerging market real estate.