Asian Market Outlook - August 2024 (B&I Capital) 13 August 2024
Continued soft inflation and employment data in the US has changed market leadership as expectations for several Federal Reserve Fed Fund rate cuts has led to a strong rotation from large cap tech into lagging sectors including REITs which are seen as beneficiaries of lower rates. The FTSE EPRA Nareit Asia USD Dev Net TR rose 6.34% in July. Our active markets:
- Japan, +9.5%: BoJ Governor Ueda raised short term rates, press conference was hawkish and confusing. Created a lot of volatility to this day. JREITs, have performed much better relatively and are up in USD terms since the move. Bank stocks, beneficiaries of higher rates moved up initially after Ueda’s comments, but then lost almost 25% in two days as rate expectations have changed with global macro conditions continuing to moderate
- Australia, +3.8%: The RBA announced no change to policy rate in its August 6 meeting and pushed back on expectations for a near-term OCR cut given persistently high inflation caused by high labour costs. We expect Goodman Group to show solid results including decent guidance due to strong contribution from its growing Data Center developments. We will probably increase our underweight should earnings be well received next week
- Hong Kong, +1.5%: Expectations going into results are extremely low especially after Hang Lung Properties’ DPS cut by 1/3rd due to weak sales particularly in China. We attended Link REIT’s HK and Shenzhen asset tour (separate note) and noticed weak attendance from buyside firms as interest in the market is at extremely low levels despite cheap valuations
- Singapore, +6.2%: SREIT results were in line with expectations and dividend growth has been stunted by higher interest costs. Given the outlook for rates globally, rates in Singapore will follow as the MAS does not set interest rate policy directly.
Bottom line: REITs have been trading up since the US CPI print on July 11 on the back of a reset in rates expectations and decent earnings.
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