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REITs Outperformed Equities Amid Russia-Ukraine War

REITs Outperformed Equities Amid Russia-Ukraine War

Australian and Singapore REITs climbed in February

By Patrick Ma, Director, Listed Products and Research

March 4, 2022 – In February, Russia’s invasion of Ukraine took the market by surprise. Sanctions from the Western countries quickly followed the attack. These include the exclusion of Russia from the SWIFT payment system. 

The Ukraine invasion and the subsequent sanctions wreaked havoc on capital markets and led to high volatility across various asset classes. Energy prices and commodity prices skyrocketed amid concerns about the supply of Russian oil and gas and that of agricultural products. Global equity markets also suffered losses on the back of fears about the return of confrontation between Russia and the West and the likelihood of high inflation resulting from this episode. 

Global equities dropped 5.0% during the month, with US stocks falling as much as 2.9%. However, global REITs outperformed global equities with a fall of only 2.7% due to REITs’ defensive qualities. 

Asia Pacific REITs reported a 0.2% rise during the month, outperforming Asia Pacific equities’ 3.6% decline. Both Australian REITs and Singaporean REITs reported gains of 6.5% and 2.7%, respectively. Australia benefited as a commodity producer, and both countries were perceived as safe-havens. Hong Kong REITs declined 6.5% as the escalation of new Omicron cases and anticipation of universal compulsory Covid-testing and accompanying lockdown of the city damaged the near term business outlook of the city, especially its retail sector.

In the near term, the outcome of the Russian invasion of Ukraine will dominate headlines and impact the outlook of the global capital markets. The war between Russia and Ukraine is the first arm conflict between nation-states in Europe since World War II and is likely to spur European states to increase defence spending. We expect the war to lead to higher energy and commodity prices, which will add to inflationary pressure. Inflation will likely lead to slower economic growth. At such uncertain times, we expect the defensive quality of global REITs, especially those in safe-havens, such as Singapore and Australia, to support global REITs’ outperformance.