Investors aim for Reits over possibility of Fed rate cut
Possibility of Fed rate cut has Reits trading above average daily volumes; mixed performance in Asia-Pacific
Trade tensions and growth worries continued to plague the local equity market, but investors took heavily to indicators that the US Federal Reserve could lower interest rates in the near future, giving rise to activity in real estate investment trusts (Reits).
Singapore's Straits Times Index (STI) closed at 3,146.18, up 3.81 points or 0.1 per cent yesterday.
IG market strategist Pan Jingyi noted: "The STI had largely oscillated near neutral in the day, with the opposing forces of worries on the impact of trade tensions and expected US Federal Reserve support locking prices in."
It was a mixed performance elsewhere in the Asia-Pacific. Australia and Hong Kong closed higher. China closed in negative territory and Japan was flat. Indonesia, Malaysia and South Korea markets were closed.
In Singapore, trading volume clocked in at 1.14 billion securities, 93 per cent of the daily average in the first four months of the year. Total turnover came to $1.54 billion, 1.5 times the January-to-April daily average, thanks to Reit activity.
Across the market, advancers outpaced decliners 222 to 168. Meanwhile, the benchmark index had 12 of the STI's 30 components in the red.
With the growing likelihood that the Fed could be looking to a rate cut to sustain the rate of US economic expansion, Reits saw a hive of activity in Singapore.
Most Reits traded above their average daily volumes, with top gainers including CapitaLand Mall Trust (up 11 cents or 4.5 per cent at $2.57) and Mapletree Commercial Trust (up six cents or 3 per cent to $2.03).
CMC Markets analyst Margaret Yang said: "Reits outperformed the benchmark on rate-cut expectations. The falling treasury yield (risk-free rate) has made Reits, which have a higher yield, more attractive in a low-yield environment."
However, traders told The Business Times they felt Reits were overbought on the day and had advised clients to take profit on some counters.
That said, RHB Research Institute and Jefferies analysts wrote in their respective equity strategy notes yesterday that, given the current environment of slowing growth and uncertainty on trade issues, Reits are preferred.
Genting Singapore was the benchmark index's most traded stock, with 47.4 million shares changing hands as the counter added 0.5 cent or 0.6 per cent to 86.5 cents. Market watchers noted the casino operator's shares were hovering around an eight-month low and valuations were below five-year averages.
Singtel shares continued to trend upwards, gaining four cents or 1.3 per cent to $3.25. The telco has been outperforming the blue-chip index in recent weeks as investors continue to shift to more defensively positioned equity portfolios.
The local banks returned from the mid-week break lower. DBS Group Holdings edged down two cents or 0.1 per cent to $24.25; OCBC Bank dropped six cents or 0.6 per cent to $10.57 and United Overseas Bank finished at $23.96, down four cents or 0.2 per cent.
After last month, where the STI shaved off 8.3 per cent, RHB Research Institute's Shekhar Jaiswal said the blue-chip index has the highest yield among regional markets, making it attractive. Valuations were compelling compared to other markets in South-east Asia.
But given the current environment, investors are best positioned to stick with defensive picks. "Investors should stay selective and focus on buying stocks that offer stable earnings, strong balance sheets and sustainable dividends,"he said.
On top of Reits, the research house has consumer-sector stocks such as Thai Beverage and Sheng Siong as favoured picks as well as ST Engineering among industrials.
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