Japan’s REITs Up In February, HK And Singapore Down On Fundraising

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

March 4, 2023 -Asia Pacific’s top-100 most-traded REITs dropped 4.5% but outperformed equities in February, which came under pressure due to concerns that higher interest rates will impact global economic growth.

Japanese REITs were down 3% but they were the best-performing in the region after the incoming Bank of Japan governor, Kazuo Ueda, said he needed to see significantly higher inflation before tightening monetary policy.

In Hong Kong and Singapore, REITs’ performance was dragged lower by equity fundraisings such as Link REIT’s HKD 18 billion (US$2.3 billion) rights issue and ESR-Logos REIT’s SG$300 million ($223 million) equity placement.

However, gains were seen from non-traditional sectors during the month, such as Australia’s self-storage sector, Abacus Property Group, which gained 1.8% as it planned to spin off its self-storage operation.

While Asia Pacific  REITs outperformed the region’s equities, global REITs performed worse than global equities. This was due to expectations that higher for longer interest rates would adversely impact global REIT’s valuation.

At the beginning of February, the US Fed raised rates by 25 basis points to 4.5%-4.75%, as expected by the markets. However, the US later reported stronger-than-expected economic growth and higher-than-expected inflation. Investors now expect more rate hikes ahead. The US 10-year Treasury bond yield jumped from 3.5% to 3.9% during the month while the US dollar strengthened. As such, global equities dropped 2.4% during the period.

March started with a rally by Greater China equity markets spurred by better-than-expected Purchasing Managers’ Index data, which indicated that economic activities have rebounded as China reopens. Investors are looking for clues on China’s economic outlook as China’s National People’s Congress starts on March 5. A recovering China economy is likely to be positive for the region’s REITs, especially those exposed to China’s reopening, such as the hospitality and retail sectors.