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iEdge S-Reit Index Weekly Review 4 Mar 24

Good day everyone. It’s been a long day! And the sight of the overwhelming red makes me even more tired.

The week had been bad for most of the S-REITs. I shall try to make sense of what happened.

Singapore Real Estate Investment Trust (S-REIT) Sector Developments for the week

Hospitality trusts were reported to have done well, with year-on-year (yoy) growth in their distribution per unit (DPU) for FY2023. This is expected with the strong rebound in international travel. Singapore clocked 13.6 million international tourist arrivals in 2023. This is more than twice of the 2022 6.3 million arrivals.

Having said so, as per mentioned previously, the higher for longer interest rate environment drag will be increasingly felt as time passes. This is evident too in the hospitality trusts with their reported rising costs.

The US Preliminary GDP (Gross Domestic Product) came in at 3.2% and Core PCE Price Index (Personal Consumption Expenditures) was 0.4%. These were not too much of a surprise and indicates a still robust economic steam. Without a remarkable slow down, the market sentiment remains dovish about the prospect of interest rate cuts. This will likely exert downside pressure for SREITs.

Frasers Centrepoint Trust (FCT) has been added to Singapore’s main index, STI. This is a recognition of its market capitalization. I expect some possible upside lift going forward as funds buy in to STI and by extension FCT.

With addition of STI index.

In the chart above, we see that the inverse correlation between the iEdge S-Reit Index (blue) and US 10-Year Treasury Bond Yield (orange) generally remains but there is a notable difference last week.

The US 10-Year Treasury Bond had retreated after hitting our resistance region and is consolidating but the iEdge S-Reit Index has dipped further, to a region which last saw the US 10-Year Treasury Bond at 4.5% and above.

So what is happening?

The answer may be our new addition to the chart. The STI Index.

The Straits Times Index (STI) tracks the performance of the top 30 companies listed on SGX and it is an approximation of the general sentiment of the Singapore market.

Recent disappointing economic data from the US and China had dampened the outlook as Singapore’s economy is highly dependent on trade. China’s official manufacturing purchasing managers’ index (PMI) fell to 49.1 in February from 49.2 in January. A number below 50 indicates a contraction in manufacturing activity for February and this is for the fifth straight month.

You can see the correlation between the STI index and iEdge S-Reit Index, especially from the red vertical line that I plotted. This suggest an overall bearish mood.

The current situation is a good reminder to us that the market is all-encompassing. There are many angles to watch out for and we need to do our best to be diligent. For now, a broad-based uplifting of sentiments is probably needed before we see any notable recovery.

In the meanwhile, I continue to invest into CSOP iEdge SREIT ETF weekly to maintain exposure to the market and average down my overall cost.

There are more important US economic events coming up this week, including testimonials by US Federal Reserve Chair Powell and the US Non-Farm Payroll which tracks jobs creation or loss for all industries excluding farming. These data will add to or reduce the higher for longer interest rate narrative.

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