S-Reits tumble on Trump’s election triumph
Concerns over rising US government debt and inflation have driven up Treasury yields
SINGAPORE-LISTED real estate investment trusts or S-Reits fell to the bottom of the Singapore Exchange (SGX) on Thursday (Nov 7) amid fears that Trump administration policies would raise inflationary pressure on the US economy and lead to a slowdown in interest rate cuts by the Federal Reserve.
Close to two-thirds of S-Reits and business trusts listed on the SGX ended lower.
The top five decliners included US office S-Reits and logistics Reits with exposure to Singapore, Australia and Japan.
The benchmark iEdge S-Reit Index, which tracks the performance of S-Reits, also fell 1.3 per cent on Thursday, a day before the Fed was due to decide on rate cuts.
Market concerns over rising US government debt from tax cuts, as well as a possible resurgence in inflation due to economic stimulation under the Trump administration, have driven up 10-year Treasury yields.
“As Singapore bond yields are closely correlated, the yield curve is likely to go up in the short term. This has resulted in a sell-off in S-Reits as expectations of rate cuts are trimmed,” said Vijay Natarajan, a research analyst at RHB Bank Singapore.
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Volatile Reit sector
Up until Wednesday, market watchers had been bullish on the outlook for S-Reits. The Fed cut interest rates for the first time in more than four years in September, easing the borrowing rates of Reits.
However, Trump’s victory has raised some questions on the Fed’s longer-term monetary policy, leading to greater uncertainty in the Reit sector, said analysts.
Blerina Uruci, the chief US economist at asset management company T Rowe Price, said that increased uncertainty about economic and inflation outlooks will factor into the central bank’s future monetary policy.
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The Fed’s chief body for monetary policy will also only be able to incorporate Trump’s economic policies into its outlook at its forecast in March next year.
RHB’s Natarajan said that he expects interest rates to remain volatile in the short term. Therefore, S-Reits may also face some short-term pressure amid market uncertainty.
S-Reits may underperform in the longer term if the Fed is forced to restart the rate-hike cycle, said DBS Group Research in a note on Nov 1.
S-Reits which are vulnerable to a trade war, such as those with exposure to China and Vietnam, could see poorer performance under the Trump administration, said Krishna Guha, an analyst at Maybank Securities in a research note from July this year.
These include Mapletree Logistics Trust (MLT), which derives about a quarter of its revenue from China and Vietnam, as well as Mapletree Pan Asia Commercial Trust , which gets about a third of its revenue from Greater China.
Likewise, DBS Group Research said that S-Reits that are linked to China, such as MLT , CapitaLand China Trust and Sasseur Reit , could be negatively affected if the US imposes tariffs on China.
Longer-term outlook
Nevertheless, analysts remain positive on the longer-term outlook for Reits.
Natarajan pointed out that Trump favoured interest rate cuts in his previous term from 2016 to 2020. He added: “Thus, we believe some of this steepening in long-term yields could be a knee-jerk reaction, and the market is likely to stabilise in the coming weeks.”
Xavier Lee, an equity analyst at Morningstar, was of the view that the Singapore real estate market will remain resilient in the face of a potential economic slowdown.
He picked Keppel Reit for its high-quality tenant register and its portfolio of prime office assets, which he believes can weather an economic downturn.
Other analysts have suggested that investors focus on large-cap S-Reits with a diversified revenue mix until there is greater clarity on the trajectory for future rate cuts. These S-Reits, which are likely to be less volatile, include CapitaLand Ascendas Reit and CapitaLand Integrated Commercial Trust .
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