REITs Remains Attractive In Low-Rate Environment
Screenshot from Business Times
Key Highlights:
Few REITs are potentially to be included in the Straits Times Index (STI) if the existing components dropped out in the next review due to poor performances
REITs remains as the safe haven in the low interest rate environment
What Does That Mean
With the rising tension of the US-China trade war, the Asia market including Singapore was affected in the past few days. In particular on Monday, 28 out of 30 STI component stocks were closed in red. The market capitalization of the few components stocks were affected by the recent downturn. There could be some re-balancing in the upcoming STI constituent review. Hutchison Port Holdings Trust, Dairy Farm and potentially SPH are among the component stocks that are flagged up.
Assuming some of these stocks are dropped out from the index, the replacement will most likely from the reserve list, which are currently all REITs including Mapletree Commercial Trust, Mapletree Logistics Trust, Suntec Reit, Mapletree North Asia Commercial Trust and Keppel Reit. Any inclusion into the STI index would be bullish for the particular REITs as billion dollar of funds and ETFs that benchmark the STI index will buy the particular REITs for portfolio re-balancing.
In general, REITs has been the out-performer in 2019. With the interest rate cut, some of REITs would potentially enjoy lower borrowing cost which will improve their earnings and dividend payout. With increasing uncertainty in the global market, REITs remains as the safe heaven with consistent dividend payout for investors.
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