“US Fed Chair Jerome Powell highlighted a marked slowdown in job creation. Despite the unemployment rate remaining low at 4.2%, Powell noted that this stability masks a concerning trend; both labour demand and supply have weakened due to tighter immigration policies and slowing labour force growth,” writes Koh in his Aug 25 report.
In July, the US added 73,000 jobs, falling short of the already modest expectation of 100,000.
Koh writes: “The sharp downward revision to previous months’ numbers is even more concerning. June's job gains were revised down from 147,000 to just 14,000, and May's from 144,000 to 19,000.”
“Hiring activities have also slowed significantly, reaching its lowest level in over a year. The weakness is caused by a myriad of reasons, including uncertainty from reciprocal tariffs, cuts in the federal workforce, strict immigration policies and rapid adoption of artificial intelligence (AI),” adds the analyst.
At the same time, core personal expenditures (CPE) inflation in the US excluding food and energy was stable at 2.8% y-o-y in June. This was despite the negative impact from reciprocal tariffs, but Koh sees that inflation could resurface in the third quarter once retailers run out of inventories accumulated previously at lower prices.
With this, he sees that a cut in interest rates could soon be approaching, possibly during the next Federal Open Market Committee (FOMC) meeting on Sept 16 - Sept 17, with Powell stating that ‘the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance’.
Koh writes: “With job growth slowing and consumer prices stabilising, the Fed could shift its focus toward stimulating economic activities.”
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Based on the US Fed’s dot plot, he notes that the median projected path for the Fed Funds Rate to be 3.9% by the end of 2025 and 3.6% by the end of 2026, indicating two rate cuts of 25 basis points (bps) in the second half of 2025 and one rate cut of 25 bps in 2026.
On the effective US tariff rate which has risen to around 15.8%, Koh sees that the inflationary impact has been muted due to gradual implementation and exemptions in key sectors like electronics and pharmaceuticals.
He writes that many companies have responded by reshuffling supply chains, sourcing from countries not subject to tariffs and renegotiating supplier contracts.
“The effective tariff rate is often lower than the headline rate due to exemptions and strategic use of trade zones, which reduces the actual cost burden on importers. Broader inflation has remained subdued due to offsetting factors, such as lower energy prices,” adds Koh.
The Trump administration is also closing in on signing more trade deals, with its recent deal to reduce US tariffs on European Union (EU) imports to 15% and the EU’s commitment to US$750 billion ($961.3 billion) in US energy purchases and US$600 billion in new investments in return.
The analyst adds: “Tariffs were lowered to 15% on Japanese imports. In return, Japan has agreed to US$550 billion in US investments and expanded market access for US agricultural and auto exports.”
With this, Koh notes that Singapore is a “safe haven” due to persistent fiscal budget surplus as a result of its rules-based approach to public finance.
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The three-month compounded Singapore Overnight Rate Average (SORA) dropped by 133 bps to 1.74% in the 8M2025, while the yield for 10-year Singapore government bond yield compressed 98 bps year-to-date to 1.88%. The lower government bond yield also expanded the yield spread by 78 bps to 3.82% in 8M2025, which Koh notes is about one significant deviation (s.d.) above the long-term mean.
The city-state also benefits from having the lowest reciprocal tariff of 10%, which is significantly lower than neighbouring countries.
As a result, Koh recognises S-REITs as “defensive investments” due to the stable income offered through regular dividend payouts that are backed by lease agreements with long tenures ranging from three years to 10 years.
He writes: “We argue that a broader recovery in liquidity triggered by upcoming US Fed rate cuts in 2H2025 could eventually lift unit prices for S-REITs.”
Catalysts noted by him for the sector include the resilient Singapore economy benefitting from low reciprocal tariff, as well as the pharmaceutical and semiconductor sectors potentially benefitting from preferential tariffs.
On the other hand, risks include a secondary tariff being imposed on Russia, which will result in a punitive tariff being levied on China and India for their purchase of energy products from Russia.
Top picks
The first of Koh’s picks is CapitaLand Ascendas REIT (CLAR), with a “buy” call and target price of $4.02.
CLAR’s Singapore portfolio accounts for 65.5% of portfolio valuation in its 2QFY2025, while benefiting from a low reciprocal tariff of 10%. “The REIT currently has eight ongoing projects comprising developments, re-developments and asset enhancement initiatives (AEI) in Singapore, the US and the UK are worth a total of $850 million,” writes Koh.
Keppel DC REIT is another one of the analyst’s picks, thanks to its positive rental reversion of 51% in the 1HFY2025. The sizable amount of co-location leases renewed in the 2Q2FY025, largely from its SGP4 data centre, accounted for 11% of rental income.
The REIT’s acquisition of SGP7 and SGP8 in Singapore was also completed in December 2024, which will contribute fully for 12 months in 2025.
Koh, with his “buy” call and target price of $2.69, adds: “Potential tenants for Keppel DC REIT’s Guangdong data centres, including ecommerce players, social media platforms, cloud service providers and AI start-ups, would require more data centre capacity once they procure enough graphics processing units (GPUs) to train their AI models.”
On Keppel REIT, he has a “buy” call and target price of $1.18, due to its strong positive rental reversion of 12.3% in the 1HFY2025.
He writes: “The average signing rents for Singapore central business district (CBD) offices were $12.77 per square foot per metre (psf pm) in 1HFY2025, higher than the average rent of leases expiring of $11.37 psf pm in 2HFY2025.”
The S-REIT’s net profit income from Australia properties meanwhile increased 17% y-o-y in the 1HFY2025 due to higher occupancy at its newly-completed 2 Blue Street in North Sydney and contribution from the newly-acquired 255 George Street in Sydney CBD.
Lendlease Global Commercial REIT (LREIT), with its competitive advantage through good asset quality and precinct dominance, is another of Koh’s picks.
The S-REIT with 87% of its portfolio valuation residing in Singapore, has a strategic focus on a sponsor pipeline of more than $6 billion in Singapore, which includes PLQ Mall, PLQ Office, Paya Lebar Green and Comcentre.
“Divestment of the office component of Jem for $462 million is expected to reduce aggregate leverage substantially from 42.6% to 35.0%. LREIT targets to lift occupancy at Sky Complex Building 3 from the current 31% to 50% by end-2025,” adds Koh.
The analyst has a “buy” call and target price of 79 cents on LREIT.
Finally, Koh also identifies CapitaLand Ascott Trust (CLAS) as another one of his blue-chip S-REITs, with its revenue per available unit (RevPAU) growing 3% y-o-y to $159 in the 2QFY2025, driven by its assets in Australia, the UK and the US. Average occupancy improved three percentage points (ppts) y-o-y to 78%.
The living sector accounted for 16% of CLAS’s gross profit in the 1HFY2025 and 17% of portfolio valuation.
The S-REIT’s management plans to acquire student accommodations in the US, the UK and Australia and rental housing in Tokyo, Osaka and Fukuoka in Japan.
Koh adds: “CLAS has planned three additional asset enhancement initiatives (AEI) in 2025 and 2026, bringing the total number of AEIs to five.”
He has a “buy” call and target price of $1.56 on the S-REIT.
Units in CapitaLand Ascendas REIT, Keppel DC REIT, Keppel REIT, Lendlease Global Commercial REIT and CapitaLand Ascott Trust closed at $2.72, $2.34, 97.5 cents, 59.5 cents and 88.5 cents respectively on Aug 25.
