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Asia Pacific REITs Underperformed Equities As Investors Discounted Risks

Australian REITs down, while Hong Kong and Japan’s REITs climbed

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

June 6, 2022 – Asia Pacific REITs dropped 1.6%, while the region’s equity market rose 0.7%. Australian REITs were the worst performing, falling 5.6%. Industrial REITs lagged with Goodman down by more than 10%. A slowdown in e-commerce growth, as indicated by Amazon, raised concerns about the logistics sector outlook. Hong Kong and Japanese REITs were the best performers for the month.

Generally, REITs were down on concerns about rising interest rates and uncertainties surrounding the economic outlook. Global REITs dropped 5.1% during the month.

Equity markets were supported by positive sentiment about China’s latest policy package to stimulate its pandemic-battered economy and the expectation of Shanghai’s reopening following April’s lockdown. The global equity markets rebounded 0.2% during the month as investors believed that the markets had already discounted most of the risks. 

The US 10-year Treasury bond yield and USD index stabilised after peaking at 3.1% and 105, respectively. In May, the US Fed raised the Fed Fund rate by 50 bps and indicated the potential for further rate hikes and quantitative tightening to combat inflationary pressure. Other central banks followed, most notably the Reserve Bank of Australia and the Bank of England. While central banks around the globe battle inflationary pressure, the markets started to worry about the potential risk of recession. The concerns were sparked by US companies’ results season, which showed the impact of rising costs on profit margins. Despite the concerns, market sentiment improved after last month’s panic. 

While the global capital markets continue to be affected by inflationary pressure, rate hikes and global economic slowdown, we believe that investors are starting to discount at least some of the negative impacts. Expectations for more proactive policies against potential slowdowns are also rising. The capital markets will likely start to stabilise after a volatile three-month period since the start of Russia’s invasion of Ukraine in February. Against such a backdrop, we believe that Asia Pacific’s REITs will rebound on the back of investors’ interests in investments backed by real assets.