Translation to English

“The US commercial real estate market is finally bottoming out… time to look for investment opportunities…”

Hyejin Hong for Maeil Business Newspaper
October 16, 2023

• Ohad Topor, Chairman of TCK investments, at the World Knowledge Forum

• REIT market declined up to 80%

• An attractive opportunity for investors with ample liquidity

• Interest rates to remain high at around 4~5%

• Now is the right time to invest in mid/long-term bonds

• Capital gains possible when the tightening cycle ends

• Solid corporate profits despite high inflation

• The US stock market to gain further

“Investors should be wary of times when the market is flooded with investors. People flocking to the market all together may signal the worst time to go into the market. By contrast, investment opportunities lie in a widespread pessimism. We need to think differently from how people behave."                            

This is the advice from Ohad Topor, Chairman of TCK Investments, during the ‘How the Super Rich Invest’ session at the recent World Knowledge Forum. He put an emphasis on potential opportunities hidden in the current weaker investor sentiment for the entire asset classes amid geopolitical risks on top of high interest rates and high inflation.

First of all, the TCK leader expects inflation and interest rates to remain high for the time being. More specifically, he sees interest rates will stay at around 4-5% for a considerable period of time. Such high rates are considered a headwind to the stock market, as it means a higher discount rate will be applied to future corporate earnings, thereby lowering the present enterprise value. Still, Topor believes that the US equity market has an upside. “One of the most important market drivers is corporate earnings, which have proved resilient despite the high rates and inflation and will support an upward trend of the stock market”, he said.

He also stressed that, unlike what most people think, elevated inflation is not directly linked to lower corporate profits. He pointed out there’s too much concern that companies will suffer worse profits amid high inflation due to two reasons - higher materials costs as well as higher interest costs caused by interest rate hikes that are intended to bring down prices. Topor explained, “people worry that high inflation may dampen stock prices, but companies manage inflation by adjusting prices of their goods or services in line with the rising inflation rate, thus offsetting any increase of production costs. In this respect, equities are still attractive even when inflation ticks up.”

Topor also suggested it is ‘the best time to invest’ in fixed income, a typical substitute for equities, as bond yields have risen along with interest rates. “During the previous low interest rate periods where bond yields went down to near 0%, it was impossible to make money from bonds, so investors relied on equities for most of their returns. Things are different now, however. As yields have jumped significantly, anyone can earn money simply by holding bonds.”

He claimed that “mid-term or long-term bonds seem more favorable than short-term ones given the higher yields, and dollar-denominated treasuries are also a good investment asset.” It’s because long-term bonds with longer maturities could give investors more capital gains in case of an interest rate cut, though they are vulnerable to wider price fluctuations due to interest rate changes. Also, dollar-denominated treasuries could be a promising asset because investors tend to shift towards the US dollar, a safe haven, in times of greater economic and geopolitical uncertainty.

Topor also shared his view on the real estate market that is standing at a turning point as the era of the zero interest rates came to an end. According to him, the sharp price drop of the US commercial real estate has endangered local banks who’ve been the major source of their funds. In fact, there’s a growing fear that, if commercial office buildings in the major US cities see a higher vacancy rate due to the working-from-home mode, local banks might not be able to recover the loans they’ve given to real estate managers. “The US commercial real estate market has hit a historical rock bottom. The commercial REITs, for instance, have lost up to 80% in value, which could be an excellent window of opportunity for investors who have ample liquidity”, stressed Topor.

Topor is a globally renowned investor and entrepreneur from Israel. He founded TCK, the first independent investment manager in Korea, with guidance from Howard Marks, Co-Chairman of Oaktree Capital. The private investment office provides a customized investment solution to Korea’s entrepreneurs, top-tier high net worth families and corporations.

He is also a senior advisor to the Korea Israel Innovation Center which he co-founded with his wife, Jasmine Topor, to connect Korea’s leading companies with innovative startups from Israel.

Over the last 22 years as investment manager, Topor has invested across various asset classes, including real estate, global equity, fixed income, private equity, venture capital, hedge fund, etc. In 1998, he established DEGEM, a non-profit organization that helps develop rural areas and reduce the poverty gap in Israel. He did his military service in the Israeli Military Intelligence, and received a Master’s degree in business (MBA) from Stanford University and a Bachelor of Arts degree in economics from Tel Aviv University.