The FTSE REIT Index is challenging a several-times tested resistance at 633. The time may finally be at hand for the FTSE REIT Index to attempt a breakout as short- and medium-term indicators appear to have strengthened.
However, volume is absent and volume needs to expand for prices to breakout. The next resistance, following a successful breakout, is likely to appear at 690, representing a short-term upside of 9%.
Volume could follow with lower interest rates. On March 21, the benchmark 10-year US Treasury yield slipped more than 3 basis points to 4.20%, and the 2-year Treasury yield was more than 2 basis points lower at 3.929%. Market observers attributed the decline to ongoing uncertainty looming over the US economy and inflation levels as President Donald Trump presses ahead with his trade tariff campaign.
At the March 19 FOMC meeting, the Federal Reserve maintained its Fed funds rate at 4.25%-4.50%, but in its latest “dot-plot” of economic projections, it revised its GDP growth forecasts downwards (1.7% vs 2.1% previously) and increased its revisions to core personal consumption expenditure (PCE) inflation to 2.8% vs 2.5% previously and raised its unemployment rate to 4.4% compared to an earlier 4.3%, as projections for 2025.
Fed Chair Jerome Powell, in his press conference, stated that the base case remains for tariffs to have a transitory impact on inflation.
With this, DBS Group Research reckons that the time really has come for REITs to do a lot better. “Interest rates in Singapore have retreated; SORA and 10-year yields are hitting a 'Goldilocks zone' for S-REITs to refinance with savings and/or to pursue selective growth,” DBS says
See also: Attention stays with mainland stocks as they rotate to consumer plays and financials
“In Singapore, the interest rate environment has also moderated in recent times with the 10-year Singapore Government Securities yield at 2.75%, while the 3-month compounded SORA is at 2.33%, highlighting that refinancing activities are turning conducive for S-REITs. In a low-growth, lower interest rates environment, we see opportunities for S-REITs to perform well,” DBS says.
In terms of positioning, DBS likes retail, industrial, office and hotels, in that order. Its top picks are Frasers Centrepoint Trust , CapitaLand Integrated Commercial Trust , Mapletree Industrial Trust , Mapletree Logistics Trust , Keppel DC REIT and ParkwayLife REIT.
“We believe [these names] can (i) deliver earnings surprise on the back of receding base interest rates and (ii) withstand economic shocks even in the event of a bear case recessionary scenario,” DBS says.
See also: Investors on DeepSpeed to China with HSTECH
Consolidation sets in for mainland stocks
Unconfirmed news reports that the European Commission is in the preliminary stages of a foreign subsidy probe into the BYD’s electric car plant in Hungary caused BYD’s prices to dip some 7%, bringing down the Nikko AM-Straits Trading Electric Vehicle ETF (EVS), and causing a sell-down in the Hang Seng Tech Index.
At any rate, the Lion-OCBC Securities HSTECH ETF (HSTECH ETF) had encountered resistance at $1 and is in a consolidation phase. Support is at 91 cents and HSTECH ETF ended the week of March 17-21 at 93.9 cents. An eventual break above $1 indicates an upside of $1.22. This is attainable as the ETF traded at $1.33 when it first listed.
EVS is likely to encounter support soon, at the 48.5 cents to 49 cents range. It ended the week of March 17-21 at 49.5 cents.
The mainland Chinese stock consolidation is likely to be moderately brief, lasting about a fortnight or so. Subsequently, the mainland Chinese stock rally is likely to broaden out from tech stocks to the consumption, banks and infrastructure sectors. The moribund property sector could also be reaching a trough.
Technically, since the broad-based Lion-OCBC Securities China Leaders ETF broke out above the several times tested $1.78 level two weeks ago, this level is likely to act as support with prices likely to move higher overall. The breakout indicated an initial upside of $1.95, and a further upside of $2.04.
