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Asia Pacific REITs Fell In June On Rate Hikes And Slower Growth Concerns

Australia was worst-performing after falling 12.7%, Singapore down 2.4%

By Patrick Ma, Director, Listed Products and Research

July 4, 2022 – Asia Pacific REITs dropped 8.3% in June but outperformed equities’ 9.5% decline. Australian REITs declined the most, falling 12.7% after the Reserve Bank of Australia’s (RBA) decision to raise target cash rates by 50 bps to 0.85%. Singapore was the best performing REIT market in the region with only a 2.4% decline.

The month of June saw the US Fed raising the Fed Fund rate by 75 bps to 1.50%-1.75% to combat inflationary pressure, which reached 8.6% in May, the highest level since December 1981. Central banks in most other countries followed suit with similar policy rate hikes. 

The US 10-year treasury bond yield rose above 3%, peaking at 3.5% before falling back to the 2.9% level. The US Fed’s tightening stance to fight inflation had raised concerns about a possible US recession, which further clouded the outlook of capital markets. Global equities dropped 8.6% during the month. 

Despite rising interest rates and the threat of a possible recession, global REITs slightly outperformed global equities with only an 8.0% decline. 

For the first half of 2022, global REITs lost 20.1% versus global equities’ 20.3%. Asia Pacific REITs had fallen 17.6% during the same period and had outperformed the region’s equities, which dropped 19.7%, and global REITs. Australian REITs had been underperforming with a 22% decline as the RBA tightened monetary policies. Singapore’s REITs were the best performers, with only a 6.4% decline.

As we look forward to the rest of the year, we believe the expectation of rising policy rates and monetary tightening by central banks in developed countries will continue to wreak havoc on capital markets. A further slowdown in global economic growth and concerns about a possible recession in developed countries will contribute to market volatility. 

While markets may perceive REITs to underperform in a rising interest rate environment, we believe that Asia Pacific REITs are likely to outperform. This optimism is because, despite slower global growth, most Asia Pacific economies continue to rebound on the back of the re-opening of their economies and their governments’ proactive fiscal policies.