Any rebound by the index is likely to be at the mercy of US risk-free rates. Yields on the 10-year US treasuries remain elevated, at 4.25%. Yields on 2-year US treasuries are also elevated at 5.03%, and the yield curve remains inverted. These underminings are likely to limit equity market upmoves in developed markets.
As a result of elevated risk-free rates, S-REITs are likely to remain a neglected sector. All three US office S-REITs tested new lows on August 25. While the REIT managers attempt to differentiate their portfolios from each other, they face two main problems. First off, market participants have tarred them with the same brush. Secondly, all three have debt expiries in 2024.
A third problem could be their year-end valuations which take place before their debt expiries. It is an unknown whether sponsors of Keppel Pacific Oak US REIT and Prime US REIT are able to articulate financial support for their REITs should their portfolios be revalued downwards, which in turn would affect their aggregate leverage levels and ability to refinance their upcoming expiries.
Elsewhere, Bloomberg has reported that Morgan Stanley lowered its price targets for major Chinese and Hong Kong stock indices for the second time in three months.
See also: Straits Times Index shows signs of decoupling from the US by outperforming
“The bank cut its base-case June 2024 target for the MSCI China index to 60, down 14% from its earlier projection. The index risks slumping to 40, or a drop of 33% from its current level of around 60, in Morgan Stanley’s bear-case outlook,” Bloomberg says.
“The change is related to Morgan Stanley’s recent reduction of its forecasts for China’s economic growth into next year. Morgan Stanly also cut its base-case June 2024 targets for the Hang Seng Index, Hang Seng China Enterprises Index, and CSI 300 indexes to 18,500, 6,450 and 4,000 respectively. In addition, given China’s weighting of around 30% in MSCI EM and MSCI APxJ, target prices for these two indexes were also lowered,” Bloomberg adds.
