Market Data Vault

The region’s markets opened 2022 in negative territory due to expectations of rising inflationary pressures, a potential reversal of quantitative easing, and higher interest rates. In its first meeting of the year, the Fed indicated that a rise in its benchmark rate will soon be appropriate with inflation running well above target and the labor market approaching maximum employment. This means the initial quarter-point rate-hike of the cycle is likely to kick in at the next Fed meeting in March. Asset purchases will also be cut to US$30 billion in February and come to a halt by March. Analyst are now penciling in a more aggressive tightening cycle of at least a 25-bps hike at each of the Fed’s meetings for the rest of the year. REITs bore the brunt of the negativity to underperform both bonds and equities in January.

Please find below the rebalancing results for the following GPR/APREA index series, which will become effective as of 20 December 2021 (start of trading):

• GPR/APREA Investable 100 Index
• GPR/APREA Investable REIT 100 Index
• GPR/APREA Composite Index
• GPR/APREA Composite REIT Index (indicated with an asterisk) 

GPR/APREA Investable 100 Index

INCLUSIONS

EXCLUSIONS

GPR/APREA Investable REIT 100 Index

INCLUSIONS

EXCLUSIONS

GPR/APREA Composite Index + GPR/APREA Composite REIT Index

INCLUSIONS

EXCLUSIONS

None

The wider GPR/APREA Listed Real Estate final dash in December brought total returns back into positive territory for the full year, largely on the performance of markets in Australia and Japan.

Australia’s property stocks have had an outstanding year in 2021 on strong earnings expectations. With inflation expected to remain manageable, the country’s central bank is under no significant pressure to tighten policy rates from the currently historic lows.

Gains were also registered across the rest of the region’s heavyweights, with the exception of Chinese stocks, which continued to remain pressured.

A series of asset sales underscored concern that equity investors will bear the brunt of losses as developers offload projects to repay debt.

However, signs are mounting that China will ease curbs on its property sector. To stem off downward pressure on the economy, the central bank trimmed banks’ reserve requirement ratio in December.

Please find below the rebalancing results for the following GPR/APREA index series, which will become effective as of 20 December 2021 (start of trading):

• GPR/APREA Investable 100 Index
• GPR/APREA Investable REIT 100 Index
• GPR/APREA Composite Index
• GPR/APREA Composite REIT Index (indicated with an asterisk)

GPR/APREA Investable 100 Index

INCLUSIONS

EXCLUSIONS

GPR/APREA Investable REIT 100 Index

INCLUSIONS

EXCLUSIONS

GPR/APREA Composite Index + GPR/APREA Composite REIT Index

INCLUSIONS

EXCLUSIONS

None

With the scheduled FOMC meeting slated to take place at the start of the month, Asia Pacific stocks were already bracing for a volatile ride from the get-go.

In a widely anticipated move, the Fed affirmed plans to dial back pandemic-era support for the economy, trimming asset purchases by US$15 billion a month. This puts the central bank on track to exit the program by mid-2022.

In the same mold, monetary authorities in South Korea and New Zealand also hiked its policy rates by another 25 basis points. While the moves were largely priced in, it presaged sentiment for the rest of the month.

The detection of the new Covid-19 Omicron variant – which health authorities observed as heavily mutated – sparked a sell off as investors raised alarms on the pandemic’s resurgence and its potential impact on economic growth. The region’s stocks, as measured by the MSCI Total Returns index, fell to its lowest from a year ago.

The region’s REITs were relatively more resilient, shedding 3% during the month to outperformed the region’s wider stock markets.

Overview

Asia Pacific equities reversed two months of consecutive declines to record their best monthly performance since December last year. The benchmark, which has been roiled by China’s regulatory crackdown in sectors from technology, education and property, rose 2.5% in August to outperform the regional property counters. Investors took heart at comments made from the Fed’s closely watched annual Jackson Hole meeting, after the Fed Chair reiterated that tapering does not mean tightening. The region’s markets also cheered after the Chinese central bank made its biggest weekly cash injection into the banking system since February. Still, the bounce came after July’s pummeling as it continued to lag the region’s property counters year-to-date with just 2.4% returned, as compared to the region’s real estate and REIT benchmarks tracked by GPR/APREA, which had risen 5.5% and 10.7,% respectively.

Listed Real Estate

The wider GPR/APREA Listed Real Estate rose 1.2% in August, after China’s property counter rose for the first time in four months. Opportunistic investors likely took a bet on the region’s oversold counters despite lingering pressure on China’s real estate sector, seeing light at the end of the regulatory tunnel as the scope for further substantial tightening narrows. Market expectations of a new rule to cap the land price premium at 15% also boosted confidence in the sector, which if implemented would cut developers’ cost of land purchases. However, Hong Kong counter did not fare as well, slumping by the most in the region. Thailand stocks rallied to lead the region’s gains after the government announced it will ease restrictions in Bangkok as well as other provinces next month, with infections and mortality rates falling as vaccinations picked up speed.

REITs

The GPR/APREA Composite REIT Index rose for a ninth consecutive month in August, gaining 1.0% to take the index to a new peak. This was mainly on the back of Australian REITs, which clocked the region’s strongest performance as the strength of its property market in recent months shored up valuations. However, the region’s other major REIT markets ended August mostly lacklustre, with those in Singapore falling 2.2% to lead the region’s declines. Defensive sectors stood out with Industrial, Healthcare and Residential REITs outperforming.

Meanwhile, Singapore is seeing heightened M&A activity, reinforcing a consolidation trend in the region. Hong Kong’s ESR Cayman has offered US$5.2 billion for the entire share capital of Singapore-based ARA Asset Management for US$5.2 billion, in a move that will create the region’s biggest and the world’s third-largest listed real estate asset manager. Both companies hold stakes and operate several REITs across the region. Meanwhile, Keppel Corp, a majority stakeholder and manager of Keppel REIT, tabled S$2.2 billion to take SPH, which operates SPH REIT, private.

Aside from the Philippines, REITs are also expanding their presence on the South Korean bourse. The nation debuted ts first REIT of the year – D&D Platform REIT – in August, a multisector REIT managed by conglomerate SK’s real estate arm D&D Investment. SK REITs, which started a book building exercise in the same month is poised for a September debut. The country expects another four listings to occur before the end of the year.

Outlook

Asia Pacific’s economic rebound has clearly taken a hit from the rapid spread of delta variant. As the surge in infection caseloads caught much of the region off guard, governments in most countries are switching tack from a zero Covid strategy, which has grown increasingly untenable in the face of the fast-moving delta variant. In an evolving battle with the pandemic, authorities are focusing on targeting a threshold vaccination rate that will allow a transition to an endemic stage of the pandemic and end the cycle of restrictions. However, the region’s REITs have remained resilient despite the uncertainty. With a Fed taper likely to precede any rate lift, the inability of the central bank to provide a clear timing signals that rates will remain lower for longer, which will continue to sustain interest in dividend plays. REITs has also remained immune to China’s regulatory wrath. The crackdown has not resulted in value destruction for China REIT proxies, which remained positive in August and has so far returned 4.5% this year. Logistics and industrial property REITs that were part of China’s first batch of nine REITs also rose through August.

Overview

Asia Pacific equities declined by close to 5% in July to surrender all its gains this year, weighed down by the Chinese government’s regulatory crackdown on the education, internet and property sectors. The tech heavy total return index, as tracked by MSCI, fell to its lowest since November last year.  While property related counters were not spared, it fared relatively better as the region’s REITs, with a more diverse geographical base, supported real estate indices. Risks were also firmly on the downside as the rapid rise in infections intensified in the region, clouding the prospects of an economic recovery. The Fed’s decision to maintain interest rates at near zero was largely priced in but the lack of any clear conviction to taper its bond purchases propped up markets, indicating that a monthly pace of US$120 billion will be maintained until substantial further progress had been made on employment and inflation.

Listed Real Estate

The wider GPR/APREA Listed Real Estate tumbled in July, as double-digit declines notched by regional heavyweight, China, proved too much of a drag. Hong Kong stocks were not spared. Support from the region’s other major markets of Australia and Japan were scant this time round as the resurgence of infections in the region hit sentiment.

India’s stocks, however, bucked the regional trend to rise by over 8%. A steady dip in Covid-19 cases rising vaccination rates and relaxation of curbs boosted sentiment on Indian stocks. The pandemic, which have underscored the importance of homes amid the remote working trend, leading to a rise in the demand for apartments, as buyers hunted for upgrades. Favourable regulations, such as RERA and the Model Tenancy Act, and the lowest home loan interest rates in years as well as stamp duty reductions in certain states also fueled a rally for the country’s realty stocks.

REITs

Asia Pacific REITs rose in July, with the GPR/APREA Composite REIT Index building on its rally to record a ninth consecutive monthly rise; the benchmark rose above its January peak last year for the second month running. As expected, the resurgence in infections has boosted the Industrial sector to register another strong month while Retail made up the negative end of the spectrum. Regionally, industrial and logistics REITs are outperformers as investors continue to pursue a flight-to-safety trend.

Across markets, gains were registered by most of the regional heavyweights, with Singapore leading the pack. Rapidly increasing vaccinations rates on the island have provided visibility to the government’s plans to gradually open its economy. However, Australian REITs declined as the renewed lockdown in several cities snapped a four-month winning streak for the country.

Meanwhile, Filinvest REIT Corp is set to become the third REIT to list in the Philippines, having set the final subscription price for its IPO at PHP7.00 per share. The stock is slated to debut on the Philippine Stock Exchange by mid-August. The region continues to boast an impressive pipeline of potential REIT listings, with 8-10 expected for the rest of the year.

Outlook

As base effects wane, rising caseloads across several countries in the Asia Pacific have dimmed the outlook for the regional economy. However, REITs have continued to remain resilient, backstopped by the Industrial sector as well as markets that have progressively clocked higher vaccination rates which will make the easing of restrictions more tenable. With long-dated treasury yields at their lowest since February, markets are now more inclined to believe that the specter of surging inflation will be less likely for now. The state of play has clearly shifted to policy risks in China as well as the threat from the fast-moving Delta variant. With central banks and the Fed likely to stick with its easy monetary policies due to a choppy recovery, there will invariably be sustained interest in dividend-rich stocks. As long as the pandemic continues to linger, investors will also continue to seek out the structural plays of the industrial and logistics sectors.

Overview

Stock markets dived in mid-June when the US Fed indicated possible quantitative tightening and a potential interest rate hike by 2023, as investors remained jittery of rising inflationary pressures and its implications on monetary policies. The region’s equity market also fell on concerns amid the strengthening greenback. Further weakness was also evident as the resurgence of outbreaks, which had governments reviving restrictions across several economies, threatened to derail recovery momentum in the region. However, property stocks across the region largely bucked the trend, underpinned by accommodative monetary conditions and sustained interest in dividend-rich stocks amid a yield-starved environment.

Listed Real Estate

Despite outperforming the region’s equities, June was another tepid month for non-REIT real estate stocks in the region with the wider GPR/APREA Listed Real Estate Composite barely staying in positive territory. In a repeat of May, gains in Australia, Hong Kong and Japan just managed to offset caution in the other regional heavyweights of China and Singapore. China’s real estate stocks underperformed for a third month running as policy overhang continued to plague sentiment, with policymakers moving to restrict credit growth and stepped up interventions in markets.

Hong Kong’s shares continued to maintain its positive run, driven by a notable pickup in property sales and prices as well as optimism surrounding it e-voucher scheme, which is designed to boost local consumption. Blackstone’s HK$23.7 billion bid for HKSE-listed Soho China also signaled sustained investor interest. Stocks in India also gained as the country’s central bank continued to maintain  interest rates at record lows.

REITs

The GPR/APREA Composite REIT Index finished strongly in June, outperforming regional equities both in June and for the second quarter. While renewed infection surges could have spurred interest in safe-haven Industrial REITs, the gains were broad based with even the risk-on sectors registering gains. A weakened Japanese yen during the period also spurred investments into J-REITs. Separately, the prospects of an eventual re-opening of its economy and borders supported the performance of Hong Kong REITs.

China’s first batch of REITs made a rousing stock market debut  registering initial gains, as the nine listed REITs – five in Shanghai and four in Shenzhen – drew interest from Chinese retail investors. The nine REITs reportedly raised over RMB30 billion with its retail tranches 10-times over subscribed. For now, C-REITs are backed only by infrastructure assets and offered as units in a fund. But the trial will be closely watched – the success of which could eventually seed measures for further liberalization.

Meanwhile, the Philippine REIT pipeline remains on track. Hot on the heels of Filinvest’s planned third quarter debut of its REIT, the country’s largest office landlord – Megaworld – is looking to unveil the nation’s largest offering that is seeking to raise as much as PHP27.3 billion. Data centre giant, Digital Realty Trust, is also considering an offering in Singapore that could raise up to US$400 million which could come as early as this year. The share sale would tap growing investor interest in data centres. The region’s expanding REIT universe is continuing apace with up to 10 new listings that could occur in the second half of the year.

Outlook

While inflationary pressures will continue to introduce volatility, monetary conditions are expected to remain loose as central banks remain cognizant that an economic recovery remains far from certain. Investors are also choosing to remain focused on the longer term. Countries in the region are now training their sights on increasing vaccination rates, raising the prospects of an accelerated re-opening of its economies. Institutional interests in the region’s commercial real estate have continued to be robust, as investors, awakened by prospects of more favourable entry prices especially in gateway markets, chase deals. The region’s REITs, in the first six months of the year, have returned close to 9.0% to overtake equities, indicating a gradual reversion to long-run fundamentals.