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Investors pile in on Reits after Fed rate cut; STI up 0.2% on Wednesday

INVESTORS piled in on Singapore real estate investment trusts (S-Reits) after the US Federal Reserve's 50-basis-point emergency rate cut to boost confidence in the economy amid the Covid-19 outbreak.

On Wednesday, Reits - often viewed as key beneficiaries of reduced borrowing costs - outperformed the broader market. The iEdge S-REIT Index, which tracks all S-Reits, gained 47.4 points or 3.3 per cent to 1,468.78, its biggest ever single day jump.

Within the asset class, industrial- and retail-related Reits performed best. Heavyweights Ascendas Reit climbed S$0.13 or 4.1 per cent to S$3.33, CapitaLand Commercial Trust jumped S$0.11 or 5.7 per cent to S$2.03 and CapitaLand Mall Trust leapt S$0.12 or 5.1 per cent to finish at S$2.46.

Mapletree Commercial Trust added S$0.11 or 5.2 per cent to S$2.24, and Mapletree Logistics Trust gained S$0.07 or 3.7 per cent to S$1.96. The latter of the two Mapletree Investments sponsored Reits received an upgrade from UOB Kay Hian to "buy" with an increased target price of S$2.08.

With other central banks likely to follow the path of the Fed, Eli Lee, head of investment strategy at Bank of Singapore noted that "the search for yield will continue to be a powerful structural driver of markets".

In a note to clients, Mr Lee recommended they switch "from poorer quality assets into steady dividend-yielding stocks, such as Singapore Reits".

While property plays benefit from looser financial conditions, OCBC Investment Research analysts prefer S-Reits over Singapore developers in the near term due to the former's "more defensive positioning and less impact from the supply chain disruption from Covid-19".

Conversely, the gains made by Reits came at the expense of the local lenders, which were laggards due to the effect that Fed cuts will have on net interest margins.

DBS shares fell S$0.25 or one per cent to S$23.91, OCBC Bank lost S$0.10 or 0.9 per cent to S$10.55 while United Overseas Bank closed at S$24, down S$0.27 or 1.1 per cent.

The performance of the local banks tempered gains on the Straits Times Index (STI), which ended 5.47 points or 0.2 per cent higher at 3,025.03. Eleven of the blue-chip index's 30 components ended in the red.

Singtel was another notable STI laggard, edging down S$0.01 or 0.3 per cent to S$2.97. In a Wednesday report, Citi Research analyst Arthur Pineda noted that telcos such as Singtel offer a good hedge in the current climate as they offer one of the lowest correlations between gross domestic product and earnings growth.

Mr Pineda also favours fibre network infrastructure plays such as Netlink NBN Trust, which closed S$0.01 or one per cent higher at S$1.01.

Trading volume in Singapore was 1.63 billion securities while total turnover came to S$1.94 billion.

Across the broader market, decliners outpaced advancers 242 to 208.

Elsewhere in the Asia-Pacific, benchmarks were mixed. Australia and Hong Kong finished with losses.

China, Japan, Malaysia, South Korea and Taiwan notched up gains.