“Historically, when the Fed stops hiking rates, S-REITs outperform the STI by 4-7% and Singapore banks by 7-22%. With light positioning, we anticipate an upturn as investors shift into S-REITs on: 1) lower interest rate/inflation concerns, 2) rotation out of J-REITs which are 3 times the market weight of S-REITs due to fears over end of “yield curve control” and 3) laggard China reopening/tourism plays,” JP Morgan says in its Feb 2 report.
The US Federal Reserve raised the Federal Funds Rate by a dovish 0.25% on Feb 1 to 4,25% to 4.5%. With that, JP Morgan analysts reckon that the Fed could pause its rate hike cycle as early as March this year.
According to the JP Morgan report dated Feb 2, S-REITs could benefit from a switch by property funds from J-REITs in the event of higher Japanese rates, as they seek selective S-REITs which can grow DPU. In addition, some S-REITs can be viewed as proxies to China’s reopening and tourism plays. Of course the main reason S-REITs could continue to rally is because of falling risk-free rates.
