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Asia Pacific REITs Benefit as Renewed Sino-U.S. Tensions Raised Concerns About Global Outlook

Asia Pacific REITs benefit as renewed Sino-U.S. tensions raised concerns about global outlook

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

In May, geopolitics became a key concern dictating the global economic growth outlook. The trade war between the U.S. and China has worsened following a breakdown in tariff talks and a decision by  the U.S. to put China’s Huawei on a trade blacklist. A “new Cold War” between the two economic powerhouses has emerged as both sides implemented new tariffs. The deteriorating global outlook prompted investors to take risk-off approach, sending global equities to a nosedive. The MSCI World dropped 5.7% for the month.

Within the Asia Pacific region, equity indices tracked the U.S. markets lower.  The exception was Australia, where a surprise victory by the pro-market incumbent Liberal-National Party led to an equity market rally as investors anticipated future tax cuts and reduced tightening on the local property market. Meanwhile, REITs outperformed equities as investors returned to defensive plays. The GPR/APREA Investable REIT Index reported a 2.3% increase in May. On a year-to-date basis, Asia Pacific REITs have also outperformed the region’s equity indices.

In the near term, the market will be watching the G20 meeting to be held in Japan at the end of June. Notably, focus will be on the U.S. and China as leaders from both countries may meet to discuss trade issues. For now, we will probably see continued weakness and cautiousness in the equity markets, which will be supportive for Asia Pacific REITs.