- Cooling inflation data adds impetus to a possible tone down in FED hikes and a pause by 1Q23.
- Historical data indicates that S-REITs turn strong outperformers during FED pauses.
- China re-opening fuels positive sentiment; improving outlook on the back of thawing supply chain disruptions.
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Pays to be early
- After hitting a peak in Oct’22, the general interest rates environment in Singapore has taken a breather. The Singapore 10-year government bond yield as of writing stands at 2.8%, close to ~60 basis points off the peak seen in Oct 2022 on the back of cooling inflation outlook and a more modest economic backdrop. Shorter term interest rates (SORA) have declined by a similar level although remaining at slightly elevated levels at ~3.2%.
- The S-REIT index performance has also seen relative strength as of late, with the index up ~0.42% over a month or ~0.46% since the start of 2023. Overall, we are encouraged that news flow has played out according to our expectations, with the news and optimism of China’s re-opening coming-in fast, boosting market optimism that supply chain constrains will ease and the pent-up demand from Chinese consumers for travel and consumption will be a boost for selected industries.
Inflation print continues to soften; implies that a FED pause is upon us.
- - Read this at SGinvestors.io -
- As such, with the FED approaching the end of the current rate hike cycle, we believe that headwinds that have weigh the S-REIT prices down in 2022 will slowly dissipate and turn into tailwinds.
Sector should recapture outperformance once FED stops hiking.
- Read more at SGinvestors.io.
