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Australian REITs Climbed, Hong Kong Slumped in October

Australian REITs Climbed, Hong Kong Slumped in October

Domestic consumption supported Australian REITs while Hong Kong fell on weak economic outlook.

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

Nov 4, 2022 – After a sharp decline in capital markets in September, there was some reprieve in October. Investors seemed to have discounted the prospects of further interest rate hikes, with the market consensus moving towards the projection that the pace of the rate hikes will start to slow and peak by Q2 2023.

The US 10-year treasury yields stayed at around the 4% level for the month, while the USD softened after reaching a new high in September.

Global equity markets rallied, however, the MSCI AC ASIA PACIFIC index fell 1.9%, primarily due to weakness in the Hong Kong and China markets. Global REITs also gained but underperformed equities due to risk-on sentiments favouring equity investments and concerns that a potential recession will hurt overall demand for property.

Australian REITs were the best performers in the region, with retail REITs driving gains on the back of strong domestic consumption. The best-performing REITs were Arena REIT (17.4%), National Storage REIT (16.4%), Centuria Industrial REIT (16.4%), Shopping Centres Australasia Property Group (15.1%) and Waypoint REIT Limited (14.6%). 

Among the worst performances was Singapore Digital Core REIT, which fell 28.6% after its distributable income came in lower than expectations. DBS has maintained its buy rating of the REIT but with a lower target price of 90 US cents from US$1.15 previously due to higher borrowing costs.

Hong Kong REITs underperformed as weak local economic outlook and lack of prospects in the further reopening of its economy, despite the recent relaxation of its quarantine policy, dampened the market. Regal REIT was down 17.8% in October.

Moving forward, the slowing pace of interest rate hikes, if materialised, should fuel further rallies of capital markets, including REITs.