At a time when Bank of England Governor Mervyn King could use a weaker pound to boost the economy, investors from Japan to Norway are propping up sterling by purchasing more U.K. real estate than British citizens and the most stocks and bonds in over three years.
Foreigners are spending more on U.K. properties worth over 6 million pounds ($9.5 million) than residents are for the first time in a decade, according to Real Capital Analytics Inc. The most recent data on portfolio investments, which include purchases and sales of equities and debt, showed a 37.6 billion- pound net inflow in the second quarter, the biggest since 2009.
While King and Prime Minister David Cameron are leading an economy poised to contract on an annual basis for the first time in three years, foreign-exchange strategists see no weakness for sterling. That’s because international investors are flocking to the U.K. as a refuge from Europe’s debt turmoil, pushing the pound higher this year against the dollar, euro and yen.
“With the U.K. being in Europe but outside of the euro zone, it offers this safe haven to some extent when you look at property prices and markets,” Thomas Kressin, the Munich-based head of European foreign-exchange at Pacific Investment Management Co., which oversees $1.9 trillion, said by phone on Nov. 8. “That is one aspect that has been helping sterling.”
Buyers from abroad already increased acquisitions of British companies by 38 percent this year compared with 2011, to the most since 2008. GDF Suez SA (GSZ), Europe’s biggest utility by market value, paid 8.4 billion euros ($10.7 billion) for the 30 percent of International Power Plc it didn’t own in a deal completed in July. Hong Kong Exchanges & Clearing Ltd. is purchasing the London Metal Exchange for $2.2 billion, subject to approval from the U.K.’s regulators.
Overseas investors are adding to holdings of gilts for a 10th-straight year, according to monthly data on the Bank of England’s website.
Residential real estate is also hot. International investors accounted for 41 percent of London houses bought for at least 1 million pounds in September, pushing the cost of luxury homes to a record, according to property consultant firm Knight Frank LLP.
The pound added 0.1 percent to $1.5891 as of 6:31 a.m. in London, bringing this year’s advance to 2.2 percent. It’s up 4.3 percent from the 2012 low of $1.5235 set on Jan. 13. The British currency traded at 80.05 pence per euro, up 4.2 percent this year, and 126.82 yen.
“The U.K. will avoid the worst of the euro-zone crisis and the pound offers relative safety compared with the euro,” Nick Bennenbroek, the head of currency strategy in New York at Wells Fargo & Co., said in a phone interview on Nov. 12. “The pound has turned more resilient than it was earlier this year.”
While analysts say the U.K. and euro-region economies will shrink in 2012, they see Britain recovering at a faster pace in subsequent years. Gross domestic product will expand 1.1 percent next year and 1.8 percent in 2014, according to the median of analyst estimates compiled by Bloomberg. The euro area will grow 0.25 percent and 1.2 percent.
Hedge funds and other large speculators are betting sterling will extend its gains versus the dollar, a reversal from last year. The difference in the number of wagers on an advance in the pound compared with those on a drop stood at 19,279 contracts on Nov. 6, according to figures from the Commodity Futures Trading Commission in Washington. That compares with 47,092 wagers on a decline on Nov. 1, 2011.
Via – Bloomberg
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