"There is further potential for lower rates, as JPM and the Street are expecting two/three Fed rate cuts by end-2025, with our economists highlighting a 40% risk of a US recession this year. We estimate a 4% upside to S-REITs’ DPU for every 100 bps fall in floating rates, and anticipate that S-REITs will revise down borrowing cost guidance. Yield spreads of 340 bps, the highest level since March 2022 which triggered a rally then, is also supportive," JP Morgan says.
Although S-REITs are an unlikely place to "hide" during a recession, JP Morgan reckons that a faster than expected 31% drop in 6-month Singapore benchmark rates and lower 1-month Sora down 100 basis points (bps) to 2.4% may see investors rotating to defensive yield plays.
Against this background, JP Morgan is expecting a 15% upside to the S-REITs' September 2024 highs.
