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AsiaPac REITs Down 24%; Hong Kong Shows Resilience; Australia Suffers

AsiaPac REITs Down 24%; Hong Kong Shows Resilience; Australia Suffers

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

Markets to remain volatile for the coming months with news flow driving sentiment.

April 3, 2020 –The Asia Pacific REIT market was hammered in March after the COVID-19 (coronavirus) outbreak intensified and was declared a pandemic, causing fear and panic.

Australian REITs had the worst performance, recording a slump of 38% versus a 25% decline for Australian equities. Large retail REITs such as Scentre Group and Vicinity Centres led the fall. Both Japan and Singapore REITs fell 20%, underperforming their respective equity markets. On the other hand, Hong Kong REITs declined 10%, a smaller drop than local equities. Hong Kong’s REIT industry is dominated by Link REIT, which focuses on non-discretionary retail,a relatively more resilient sector against a backdrop of a weak economic outlook.

Overall, the GPR/APREA Investable REIT Index reported a 24% decrease in February versus MSCI AC Asia Pacific’s 12% decrease over the same period. Similar to global REITs, the COVID-19 pandemic hit Asia Pacific REITs particularly hard, with the retail and hospitality sectors being the most affected. Despite the prospects of lower global interest rates and simulative fiscal policies, the markets focused on the weakness of the global economy, with disruption to tourism and trade affecting REITs’ rental outlook.

The MSCI World Index dropped 13% during the month, leading to a 21% fall for the first quarter of 2020. Global REITs underperformed global equities with a 24% drop for the month and a 17% fall for the first quarter.

The pandemic has led to lockdowns and shutdowns within countries and across borders. A near- complete halt of business activities has raised concerns about an already-weak global economy on the brink of a recession and a potential financial crisis. Central banks worldwide, led by the U.S. Federal Reserve, has responded with drastic rate cuts and “unlimited” quantitative easing. Meanwhile, governments around the world rolled out massive fiscal packages to support individuals and small businesses, as well as the economy. 

The capital markets have been gripped by uncertainty in dealing with the coronavirus. The U.S. government’s projection of a possible 100,000 to 240,000 deaths caused jitters across all markets. While most of the Asia Pacific countries remain in lockdown status,  the region has started to see a somewhat more stabilised situation, compared to the west. With the COVID-19 pandemic remaining the most dominant factor for capital markets, we expect Asia Pacific REITs to remain volatile for the coming months. Market sentiment will be driven by news about the pandemic, concerns about a possible global recession, and any potential returns from the current massive fiscal and monetary stimulus.