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AsiaPac REITs Down in Sept on Inflation Scare, Economic Slowdown

AsiaPac REITs Down in Sept on Inflation Scare, Economic Slowdown

Hong Kong REITs were worst-performing amid speculation that the Chinese government pressured property tycoons to help solve local housing issues.

By Patrick Ma, Director, Listed Products and Research

October 5, 2021 – The top-100 most investable Asia Pacific REITs fell 4% in September, underperforming the region’s equity markets. The REIT market was dragged down primarily by rate-hike concerns and a slowing economic growth outlook.

Inflationary expectations were on the rise following sharp increases in energy prices, which led to concerns about the potential for earlier-than-expected policy rate hikes from the US Fed. 

The global economy slowed further, especially with US growth running out of steam after a post-pandemic surge in economic activities. China manufacturing sector was also plagued by power shortages and rising raw material costs. As a result, global equities dropped 4.1% in September. Global REITs performed worse than equities, with a 5.5% decline.

Despite the negative news flow across the markets, Asia Pacific equities rose 1% in September, mainly due to a 2.9% rise in Japan’s equities, as the resignation of Suga as Prime Minister spurred hopes of new economic stimulus from the new incoming leadership. However, equities in other Asia Pacific markets dropped amid ongoing concerns about China’s slowing economic growth outlook. The mainland’s government had tightened regulations in various sectors, and the market was concerned about the potential impact of an Evergrande fallout. 

Hong Kong REITs were the worst performing in the region amid speculation that the Chinese government had pressured Hong Kong property tycoons to support the government and help resolve the local housing problem. This spooked the Hong Kong property sector. Japan REITs also saw a sell-off after substantial gains year-to-date.

Rising energy prices, emerging bottlenecks at different parts of global supply chains, and higher inflation have contributed to expectations that the Fed will kickstart asset tapering. While all these factors have an adverse impact on global REITs, the global real estate market outlook is still robust, especially for selected segments such as the Australian market and the industrial property sector in the Asia Pacific region. Thus, we are optimistic about the longer-term outlook for Asia Pacific REITs.