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Admiral Investments: Asia Pacific REITs Fall as Investors Switch Out of Defensive Plays (April market analysis)

Market Update for April 2019


Admiral Investments: Asia Pacific REITs Fall as Investors Switch Out of Defensive Plays

By Patrick Ma, Director, Listed Products and Research, Admiral Investments


In April, the market saw a combination of stabilising economic outlook in the U.S. and China and continuing easing policy stance from governments and central banks.

The 1Q 2019 economic data from the major economies—the U.S. and China—have shown economic growth momentum. The U.S.’ quarterly GDP growth of 3.2% and China’s 6.4% expansion suggest better growth outlook ahead. Meanwhile, the market is still expecting further loosening of  monetary policies from the central banks. Thus, global equities were on a roll in April, with the MSCI World rising 3.6% for the month.

Within the Asia Pacific region, equity indices followed the U.S. markets and embraced a risk-on mode, with MSCI Asia Pacific up 1.6% for April. However, the markets switched out of defensive plays, which contributed to weaker performances by the REITs.

The GPR/APREA Investable REIT Index reported 1.7% drop in April. On a year-to-date basis, Asia Pacific REITs have also underperformed the region’s equity indices.

Despite a strong April for the equity markets, there were signs of lingering concerns over the global economic growth and changes in expectations about fiscal and monetary policies.

Early indicators, such as the Purchasing Managers Indices (PMIs), have suggested a slowdown in economic growth. The U.S. Fed Chairman Powell has also played down interest-rate cut expectations with his comment following the latest FOMC meeting that the policy stance is “appropriate right now” and the Fed “[doesn’t] see a strong case for moving in either direction.” China’s latest Politburo meeting has reiterated a policy stance based on “supply side structural reforms” and “houses are for living, not speculation”. These policies indicatively points to a back-stepping from further easing.

Given the current policy environment, we may see cooling equity markets and a risk-off mode ahead, which will be supportive for the Asia Pacific REITs’ performance.