SINGAPORE (Mar 20): Real estate investment trusts, especially US REITs listed on SGX, may be in for further volatility. The huge stimulus that the US administration is proposing will have to be funded by debt and that could drive up US risk-free rates regardless of the level of the federal funds rate, which is at zero. This could cause a double whammy for the US REITs as the pressure on US capitalisation rates could be upwards at a time when the US economy is slipping into recession.
If that was not enough of a headache, on March 17 the US Federal Reserve announced that the US commercial paper market has been under considerable strain as businesses and households face greater uncertainty in light of the coronavirus outbreak. Hence, the Fed also announced a US$700 billion ($1.02 trillion) quantitative easing programme, and Commercial Paper Funding Facility (CPFF). Chart 1 shows the performance of US REITs versus Chinese retail REITs.
