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Inflation And Slower Global Growth Weakened Equities, REITs Continued To Outperform

Singapore and Hong Kong were the region’s best-performing REITs.

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

May 5, 2022 – Concerns about inflation and slowing economic growth affected capital markets in April, with equities’ performance worse off than REITs. 

In March, the U.S. reported a CPI inflation of 8.5%, raising concerns about further inflationary pressures and the likelihood of more aggressive interest rate hikes. The recent Covid-19 lockdown of Shanghai also led to concerns about China’s economic growth outlook and the potential for further global supply chain disruptions.

These developments clouded the prospects of global economic growth this year. The U.S. dollar (USD) strengthened, and global equities fell 8.3%.

REITs As Defensive Assets

Global REITs had become safe havens for investors, dropping only 5.2%, outperforming equities.

Asia Pacific REITs’ performance was even better, falling by 5% versus a 6.4% decline for Asia Pacific equities. Singapore and Hong Kong REITs were the best performing in the region.

Going Forward

The beginning of May had seen a flurry of reports of weak purchasing managers’ index (PMI) for most major economies. The market is anticipating the Feds to raise the U.S. benchmark interest rate by 50 basis points (bps) in the next Federal Open Market Committee (FOMC) meeting.

In the Asia Pacific, the Australian central bank had announced a 25 bps hike in the cash rate, signalling monetary tightening. 

Despite concerns about the effect of increases in benchmark interest rates on global REITs’ performance, we believe REITs are likely to remain relatively attractive. This is due to REITs’ defensiveness and investors’ rising demand for real assets.