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Stock markets in the Asia Pacific endured bouts of volatility in February, triggering flashbacks to the taper tantrum that roiled the region back in 2013. The US 10-year Treasury yields rose to a one-year high, as massive government stimulus is seen to fuel higher economic growth and inflationary pressures; the low rates currently pursued by the Fed is unlikely to be sustainable in the face of an improving economy and rising commodity costs. Asian bond yields pushed higher against the backdrop of the spike in long-dated Treasury yields, a precursor to further turmoil in equity markets as it diminishes the appeal of a stock’s dividend yield, compelling investors to rebalance their portfolios in a hunt for value.
Listed Real Estate
The rotation lifted the GPR/APREA Listed Real Estate Composite above REITs and overall equity indices, powered by developers listed on the China and Hong Kong bourses. Rules to centralize and limit land sales to only thrice a year are the latest in a series of policies to tame property prices on the Mainland with as many as 22 city governments including Beijing, Shanghai and Shenzhen reportedly expected to abide by the new measures. Investors are optimistic that more rational bids could result from these supply-side policies, leading to better profit margins. Indonesian stocks also outperformed after the country’s central bank slashed interest rates and reduced downpayments on property purchases.
REITs
Despite coming under selling pressure in response to the sudden hike in sovereign bond yields, Asia Pacific REITs gained with the GPR/APREA Composite REIT Index reversing the decline experienced in January. Hong Kong REITs stood out, returning over 7.0% as vaccine optimism raised expectations of a rebound in the retail sector. Those in Japan also rose, led by its Hospitality and Office REITs.
Australian and Singapore REITs were the only markets that softened in the region, as the spike in bond yields drove weakness in its Industrial REITs, spurring rotational interest into the more cyclical Retail and Office sectors.
Meanwhile, the Philippines is setting a blistering pace in expanding the REIT universe in the region. Eight months after the debut of Ayala Land REIT, the country will have its second REIT – DDMP REIT – list in March. A portfolio that includes offices situated along a stretch of the capital’s main thoroughfares allowed developer DoubleDragon Properties Corp. to price its REIT IPO at the higher end of its indicative range. With PHP14.7 billion raised, it stands – for now – as the country’s largest REIT offering.
However, this is likely to be surpassed by Filinvest’s offering, who is aiming to raise PHP15 billion from investors. With three other listing on the cards, including those from SM Prime, Robinsons Land and Megaworld Corp., the Philippines is set to become the REIT IPO hotspot in the region this year.
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Global capital markets rallied at the beginning of the year, riding on expectations of a global economic recovery; investors also cheered the swearing-in of US President Joe Biden and the implications of anticipated policy reversals that could arise from the new administration. However, financial markets faltered towards the end of January, ending with a mixed performance as new coronavirus variants and delays to vaccinations prompted caution. Real estate stocks in the region failed to hold on to the rally that started in November last year. However, Japan and Singapore-listed counters managed to buck the overall trend.
Listed Real Estate
The GPR/APREA Listed Real Estate Composite fell at the start of the new year, underperforming both the region’s equity and REIT markets. The declines were seen across the region’s bourses with those in the emerging markets hit particularly hard. Rising infection caseloads threw recovery prospects in doubt as stocks across the major markets in emerging Southeast Asia came under pressure with governments reverting to stricter measures. In Hong Kong, authorities also imposed the city’s first lockdown to battle another wave of infection. Meanwhile, investors became wary after monetary officials in China unexpectedly slowed liquidity injections, signaling a tightening bias as the country’s recovery from the pandemic gains firmer footing.
REITs
Asia Pacific REITs declined in the opening month of 2021 with a marginal 0.3% loss, dragged lower by Australian REITs which fell 4% in January. However, those in Japan and Singapore bucked the regional trend to post increases on the strength of its office and industrial listings. Office S-REITs reportedly remains well poised to capture regional expansion by Chinese tech giants with the likes of Lazada and its parent company, Alibaba, as well as ByteDance, which owns TikTok, expanding its office footprint on the island.
Brookfield India Real Estate Trust, backed by Canadian asset manager Brookfield Asset Management Inc., is seeking to raise as much as US$522 million in an Indian IPO, which is slated for a February debut. Brookfield’s REIT is the third REIT launched in under two year, as acceptance of the investment product gain momentum in the country. India has been seeking to attract more REIT IPOs in recent years by tweaking rules to make the vehicle more attractive for investors and developers.
Blackstone is also believed to be floating its logistics portfolio on the Australian stock exchange, according to newspaper articles. With a 45-asset portfolio across major Australian cities, the newly created Milestone Logistics is expected to raise more than A$1 billion if the IPO is pursued.
Outlook
Asia Pacific REITs could be set for a broader recovery this year, with the continued global economic recovery and low-interest-rate environment a positive for the asset class. However, the pace will remain uneven across sectors. Riding on long-term structural trends, Industrial REITs have emerged as safe-haven assets in a pandemic-ravaged year. This is likely to persist as the increasing prevalence of mutated COVID-19 virus strains could refuel demand in the sector, which we note has outperformed at the height of the pandemic. The fortunes of Office REITs will be bifurcated along with geographies, with those with exposure to the region’s tech hubs likely to outperform. While recovery in the Hospitality and Retail is likely to be more nuanced, vaccine optimism has fueled confidence and likely beneficiaries from a rotation to cyclical stocks. The uncertain course of the pandemic and the trajectory of the global economic recovery, in the meantime, will likely induce more volatility in the short term and remain a huge sentiment driver. However, with continued progress in the development and more visibility on the horizon in the deployment of vaccines, there are reasons to believe that risks in 2021 are weighted on the upside.
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