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Asia Pac REITs Outperformed Equities In April Led By Australia and Japan

Asia Pac REITs Outperformed Equities In April Led By Australia and Japan

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

Asia Pacific’s top-100 most traded REITs rose 2.6% in April, benefitting from a more benign economic and monetary environment. Australia and Japan REITs were the leading performers, with gains of 4.6% and 2.8%, respectively. The Reserve Bank of Australia’s decision to pause its interest rate hike in April had been positive for Australian REITs, especially those exposed to the residential sector, such as Stockland and Mirvac. However, the RBA did raise rates in May, against expectations. Similarly, Japan’s continuation of its ultra-loose monetary policy also helped support its residential and logistics REITs in April.

Asia Pacific REITS outperformed the region’s equities, which dropped 1% after Greater China equities fell. Investors remained concerned about the pace of China’s economic recovery despite a better-than-expected 4.5% real GDP growth for 1Q 2023. 

Following JP Morgan’s acquisition of First Republic Bank, concerns about the U.S. banking system eased. Global equities rose 1.8% in April. Market sentiment also improved amid expectations of peaking U.S. interest. Global REITs climbed 1.7%.

At May’s FOMC meeting, the U.S. Fed raised its federal fund target rate by 25 bps to 5%-5.25%, as expected by the market. The Feds’ statement moderated its previously hawkish stance, which led to expectations of a pause in interest rate hikes. Federal Reserve Chairman Powell’s responses also indicated an increased likelihood of a hiatus. However, he signalled that interest rate cuts are unlikely in the near term.

For Asia Pacific markets, central banks largely took a “wait-and-see” approach on monetary policy. Bank of Japan’s chief, Kazuo Ueda, reiterated his predecessor’s zero interest rate policy and yield curve control. Singapore also signalled halting its tightening cycle as the Monetary Authority of Singapore said the Singapore dollar had seen substantial appreciation against the U.S. dollar.

Rising recessionary pressure and problems among U.S. regional banks will likely lead to rate-cut expectations. Other central banks may take their cue from the U.S. Fed and reverse the tightening bias, especially if concerns about a global trade slowdown become more prevalent.

Under such circumstances, Asia Pacific REITs should see less pressure from interest rate hikes. Furthermore, we think relative outperformance by Asia Pacific REITs is likely on the back of the region’s better economic growth outlook. If Ueda continues the Bank of Japan’s current policy stance, Japan REITs is likely to outperform.