Monday, 25 July 2016

Can S-REITs go up further?

1. 

All of the big 3 S-REITs (CMT, CCT and Ascendas) have registered about -2% drop today, as a result of some profit-taking action, after the rally post Brexit. 

Technical charts indicate that further price easiness in near team could be possible, especially for CCT. ( see charts below) Will this be a bump on the rising trend? or a reversal? My instinct is that the price will be range bound for now.  The final answer will be depending on how bond yield behave in future, and how FED make its rate decision in the remaining of the year.  The recent mini bull run for S-REIT is almost purely due to bond yield compression. Two logic paths both can explain the bull run for yield product especially REITS. 

I. Brexit--- economic uncertainty---central banks maintain or strengthen money easing policies --- more liquidity ---asset price up. 

II. Brexit --- risk of economic recession --- money seeks safe haven--- bond price up, yield down --- yield spread increase --- extra money move into yield products, especially big cap safe REITs. 

Even the third possible ( or more desirable) path could benefit REITs also.

III. Brexit --- new deal work out by capable leaders, political risks decreased --- economy up---employment and inflation improves---FED happily raise rate--- financial market adjustment---REITs price corrections due to new base scenario,but holds steady and grows as improved economy and rising inflation tend to draw money back into property.

So in any case, hold on to your REITs! Right?

2. 

It worth noting that some US REITs ( Realty Income Corp, or "O" , one of my long term US REITs holding, and some US Reits ETF) have gone up much more  than S-REITs during last few weeks' "bond yield compression bull run". The large cap S-REITS are more correlated probably due to big money funds exploiting arbitrage, while the small cap ones are mostly still back water.




But compared to liquidity, the more important thing to long term income investor is still the earning power of the assets, the quality of the management among other things such as supply-demand condition in property segments.

Only when the tide fades, we can see which REIT emerges with real value, which REIT is rubbish.  If I have to bet, I would use common sense to put my dollar into the stable counters with relatively low yield to grow fund slowly and steadily, rather than to try find "mis-priced opportunities" in high yield counters. It is important that with your investment, you feel relaxed and can have a sound sleep at night.

Charts: 

1. Big cap S-REITs had a nice run up, and needs to take some rest now.




2. Some mid or small cap seems like back waters, not stir up as much, but steady.




3. Rubbish will be rubbish.



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