In their July 15 report, DBS Group Research analysts Dale Lai, Geraldine Wong, Derek Tan and Rachel Tan note that investors’ attention has been focused on Singapore REITs (S-REITs) following an ongoing robust run up in S-REIT prices.
They add that the S-REIT index is up by close to 7.0% within the past two days, as at the time of writing on July 12.
“Our conversations with clients over the past few days appear to suggest that confidence in and re-allocation into S-REITs are returning,” say the analysts.
This comes on the back of more dovish statements by the US Federal Reserve (US Fed) in recent weeks concerning the timing of the first rate cut as well as the inflation rate for June, released July 14, which was below market expectations.
In response, rate cut expectations of one to two cuts by December previously have been raised to more than two, as at July 12.
Despite the current sentiment of a near-term lift for S-REITs, the analysts note that this change in sentiment could also result in a “swing of the pendulum” in the opposite direction in the immediate term for S-REITs.
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Amidst expectations for a broadening REIT rally in the immediate term, the team at DBS has “buy” calls on CapitaLand Ascendas REIT A17U (CLAR), Mapletree Pan Asia Commercial Trust N2IU (MPACT) and Mapletree Logistics Trust M44U (MLT), with target price of $3.25, $1.75 and $1.75 respectively.
However, the analysts also believe that other names offering yield in the range of 6.0% to 10.0% on average could be set to benefit from the potential rally.
“That said, we maintain our view that a sustainable rally will need to be supported by a clearer path to normalisation, which is lacking at this moment,” writes the team.
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Presently, the analysts note an ongoing preference for Singapore-focused names, following the strength of the Singapore dollar and the clarity of returns, as per the team’s conversations with its clients.
As such, the DBS team has expanded their scope with four additional filters. These filters include Singapore-focused REITs where Singapore contributes at least 50% of its total assets, S-REITs with high gearing, a lower-than-average hedge ratio and share price laggards.
These filters are set to identify names that could potentially join the REIT rally when macro data points that support further dovish behaviour materialise, add the team.
