The weakness largely came from rising expectations in the market of Fed rate hikes in 2022 with the consensus now expecting in the range of four to five hikes through the course of the year, write the analysts in their Feb 3 report.
“The Fed meeting in late Jan 2022 doesn’t provide comfort when the market reads the hawkish tone with caution, with the first rate hike expected to happen in March,” they add.
In January, most sectors dipped between 3 to 8%, according to the analysts.
“The biggest dip came from the industrial S-REITs (-8.0% m-o-m) and healthcare (-6.6% m-o-m), which we believe is due to their lower absolute yields ranging from 4.0% to 4.5%, compared to the overall sector yield of 6.0%,” they note.
See also: UOBKH raises TP on SIA to $6.22, FY2026 earnings to see lift on fuel cost savings
This was due to outflows from the sector coupled with rotational interests as the “re-opening” theme remains firmly in play. The retail-focused S-REITs and office-focused S-REITs dipped by a lower 5.0% and 3.0%, respectively, while hospitality S-REITs dipped by 3.7% and
US hospitality names dipped by 3.0%.
According to the analysts, S-REITs seem to be bottoming out ahead of rate hikes. “In view of the impending rate lift-off in March, we believe that we are nearing the near-term bottom for S-REITs, with the sector also having hit the bottom in prices back in March 2016 after rates were last raised,” they say.
“We are, therefore, not sellers at these levels but are looking for an opportunity to accumulate upon the weakness.”
Photo: Bloomberg
