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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.
Download the Report Read MoreAs governments across the world begin to ramp up their vaccination plans, travel will return. We do anticipate some caution in the near term as borders reopen and the mechanism to facilitate mass travel is formalised.
While there will be changes and more emphasis on factors such as hygiene, our inherent wanderlust, relatively cheap cost of travel and pent-up demand will drive our prediction of a V-shaped recovery for the sector over the next three to four years.
Industrial market sees recovery
Industrial activity was observed to be relatively robust as strata sales and vacancy rates improve gradually but uncertainties remain.
In Q4/2020, the economy contracted by 2.4% YoY, moderating from the 5.8% contraction in Q3/2020. This was largely attributed to the 10.3% YoY expansion in the manufacturing sector, extending the 11% growth in Q3. The growth was led by output expansion in the electronics, biomedical manufacturing, precision engineering and chemicals cluster. Nevertheless, the COVID-19 pandemic still took a toll with Singapore’s economy contracting by 5.4% in 2020, a reversal from the 1.3% expansion in 2019. However, the manufacturing sector posted growth of 7.3%, in contrast to the 1.5% contraction in 2019. This was supported by expansion in the biomedical manufacturing, electronics and precision engineering clusters, arising from strong demand for pharmaceutical products, semiconductors and semiconductor manufacturing equipment respectively. With the pickup in manufacturing demand following the reopening of the economy, the manufacturing sector ended on a positive note in 2020. In December, the overall Purchasing Manager’s Index (PMI) remained in expansionary mode for a sixth straight month. Similarly, manufacturing output grew by 14.3% YoY in December, bringing overall growth to 7.3% in 2020. The expansion in December was supported by the electronics, chemicals and precision engineering. On the other hand, after an increase of 6.5% in Q3/2020, non-oil domestic exports (NODX) recorded a 0.5% YoY decline in Q4/2020. Nevertheless, NODX expanded by 4.3% in 2020, a reversal from the 9.2% drop in 2019. Despite global economic uncertainties, the overall growth in 2020 was led by increased shipments of electronics and non-electronics products.
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