Mid-Week Comment March 10: Asian REITs outperform

Mid-Week Comment March 10: Asian REITs outperform

WRITTEN BY GOOLA WARDEN
THURSDAY, 11 MARCH 2010 10:08


SO FAR, Asian stock markets have been going nowhere this year. Year-on-year though, the STI has almost doubled, the S&P500 is up 69%, and the FTSE All-World Index up 75% in US$ terms. Not surprising then that after such a performance, markets are taking a breather.

It is also not surprising that analysts are now recommending REITs over developers as investors shift their attention to yield. That is not to say that REITs have underperformed stocks. In a recent report, Ernst & Young points out that Asian REITs as a group have outperformed in terms of total returns. Singapore and Hong Kong REITs posted 85.6% and 64.5% returns respectively in 2009 with Malaysia (38.6%) and South Korea (28.4%) also performing strongly. Returns for Japan’s REITs grew just 6.68%, with Australia’s REITs performing slightly better at 10.4% growth in returns in the same full-year period. The largest single REIT market in the world, the United States, witnessed almost 28% returns.

In a report dated March 8, DBS Group Research points out that Singapore’s property sector is becoming increasingly segmented because of government policy. The recent measures are aimed at keeping public housing affordable.

“The policy road ahead is likely to remain focused on the mass-end of the housing market,” the report states. “We believe these rule changes were widely anticipated, given the frequent allusions by key political figures in recent months, on the need to address issues of affordability and social cohesion in the public housing arena,” says DBS. “This is likely to filter up to greater pricing resistance in the mass-end private housing segment, in line with our call to place bets on the high-end developers instead.” Its favourite plays in the property market are Ho Bee Investment and Wheelock Properties because of their focus on the high-end, and diversified players such as Capitaland and United Overseas Land.

DBS also prefers REITs such as CDL Hospitality Trusts, Ascott Residence Trust and CapitaMall Trust to developers.

CHART VIEW: BLUE CHIPS COULD DRIVE STI HIGHER
This week, the STI (2,862) has managed to move above its 50-day moving average at 2,812. The 21-day RSI has broken above a resistance and its equilibrium line, indicating that near term, prices are set to rise. Quarterly momentum is turning up from its equilibrium line, and the DIs have turned positive. Resistance stays at the 2,900-2,913 range. Volume has picked up a trifle, but remains below the levels when the market peaked in January.

Instinctively, if the STI attempts to break out, it will do it with the help of index stocks. The stronger ones are Sembcorp Marine, Sembcorp Industries, Neptune Orient Lines, the Jardine group of companies, Singapore Airlines and Singapore Telecommunications. SIA ($15.94) has moved up by $1 since the start of the month, and has been an important contributor to the STI’s strength. Technically, it is emerging from a bull flag, and looks set to move above $16. But, after such a strong surge, a pull-back should not be unexpected.

Singtel ($3.15), on the other hand, peaked last July, and has been entrenched within a trading range for the past six months. If it breaks out — and indicators are strengthening — it could well re-test the $3.50 level. That in turn would trigger the STI’s own break above 2,900, indicating a new upside target.

http://www.theedgesingapore.com/blog-heads/goola-warden/13373-mid-week-comment-march-10-asian-reits-outperform.html