Sleeper March/April 2010

Hotel Analyst
www.hotelanalyst.co.uk
to sit on its hands when it comes December, forecast that neither inﬂationary train wreck down
Solvency to rate rise and will allow it to end the ECB or the Federal Reserve the line” as governments unwind
quantitative easing more slowly. will raise interest rates by the year stimulus packages.
replaces Just as complex is the situation end but that tightening would The trick for investors,
within the Eurozone. Here, begin in the UK, rising from 0.5% according to Variant Perception, is
liquidity there are huge problems within to 1%. ﬁguring out whether deﬂation or
peripheral countries with Greece The consensus forecasts inﬂation is going to win out of the
If the last couple of years were being the most critical. But the published in the SG document next few years in particular asset
characterised by a liquidity larger economies of Spain and indicate a slight tightening at both classes and geographies.
crisis, particularly in the possibly Italy are likely to come the ECB and the Fed as well as
absence of debt funding, the under some pressure due to the the UK. Desert storm
next couple look destined to size of their deﬁcits. As is usual at this time of
be about solvency. Germany, the main economy year, most of the big banks have In a delicious bout of “shoot
The scale of the solvency in the Eurozone, looks unlikely published macro-economic the messenger” the ruling
problem is going to be determined to be rescued by an export-led outlooks for the year ahead. elite in Dubai seemed intent
by political and macro-economic recovery as it has been in the past. Credit Suisse strategists are on sticking their heads in
factors and these are going to vary Jean-Claude Trichet, the head of positive about global growth for the sand during the early
across borders. the European Central Bank, said ﬁve reasons: employment will days of the debt crisis, while
The consensus among in January that he expects the improve as many corporates have simultaneously ﬁngering
economists is that most advanced recovery in the Eurozone during over shed labour, particularly in outsiders for their problems.
industrial countries are in for a 2010 to be “chaotic”. the US; corporate spending will At one level, it was not a bad
slow climb out of the recession Debt rating agency Moody’s pick-up; China will grow quickly; reaction as the storm looks set
while many emerging economies has identiﬁed three principal US housing will continue to to prove temporary and should
enjoy much more robust growth. downside risks for the macro- recover; and the inventory rebuild provide some cover for an orderly
Among the big questions for economy. These are a disorderly is yet to occur. This is particularly restructuring for what has clearly
property investors are how rapidly exit by governments from high- good news for the hotel sector as been an overheated market.
interest rates rise and how robust stimulus policies; ﬁnancial demand is primarily driven by Sheikh Mohammed bin Rashid
will the recovery be in occupier institutions not rebuilding capital corporates. Al Maktoum, the emirate’s
demand. buffers at sufﬁcient speed to Goldman Sachs analysts are ruler, reacted by criticising both
On the latter, it appears that the withstand remaining threats; and forecasting a continuation of investors and the media for
rebound is proving stronger than an unexpected decline in China’s very low interest rates, stronger “misreading” the announcement
most feared as the upgrades on growth. than expected earnings, strong that Dubai World was going to
trading outlooks from hoteliers Moody’s gives forecasts in a one commodity demand and investors default on its debt.
proves. percentage point range for GDP moving back into riskier assets Aside from stating the obvious
Interest rates, however, are a growth during 2010 and 2011. In such as equities. The economy that this is not the right reaction
much tougher call. The issue here the advanced industrial countries is making the transition from the – nor was removing copies of
is how governments handle the the US is expected to lead the hope phase into the real recovery London’s Sunday Times from
withdrawal of the various stimulus way, followed by the UK. Within phase. sale in Dubai due to its coverage
packages. A sudden push towards the Eurozone growth is expected Morgan Stanley, however, – the comments attributed to His
debt reduction, which is likely to be more anaemic. thinks things will be tougher. The Highness do at least show he is
to be a combination of spending Moody’s further warns that the withdrawal of the various stimulus intent on riding out the problem.
cuts and ﬁscal tightening, is likely balance of risks points towards packages will be a particular risky The reaction of investors also
to enable central banks to keep higher global interest rates. It period, according to the European shows a couple of seemingly
interest rates low. does not believe that the end of strategy team. contradictory things. Firstly, if a
In the UK, it looks likely that quantitative easing by central Bank of America Merrill Lynch crisis in a tiddly country with a
there will be a Conservative banks will necessarily lead to rabid is more optimistic. Merrill’s GDP of less than $50bn provokes a
Government in place by June which inﬂation. But it acknowledges that sees strong global growth above global sell-off, investor conﬁdence
will be seeking to sharply reduce QE has acted to spur asset price consensus estimates and benign is overly fragile. But secondly,
the deﬁcit. Probably not quite on reﬂation and this may create asset inﬂation. these same investors clearly have
the scale of the Irish but pretty price inﬂation and ultimately a What most of these outlooks nothing bigger scaring them off
severe. While this could well take bubble. highlight is the big risk of right now.
the steam out of any recovery it will Societe Generale’s ﬁxed income sovereign debt default. Analysts For hotel investors, there is
also enable the Bank of England team, in a report at the end of at Variant Perception forecast “an also some good news in that
106 MARCH / APRIL 2010 WWW.SLEEPERMAGAZINE.COM WWW.SLEEPERMAGAZINE.COM MARCH / APRIL 2010
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