GPR/APREA Index

The Fed moved on its widely anticipated 0.25 percentage point rate hike during the month, the first increase since December 2018, signaling the start of an incremental salvo to address spiraling inflation. However, with the move largely priced in, stocks in the region remained focused on the fallout from the conflict in Ukraine, which has exacerbated inflationary pressures through rising energy and commodity prices, as well as conditions nearer home. Signs of a resurgence in the pandemic across a number of major Chinese cities and the resultant lockdowns also depressed markets. While sentiment was lifted after China tried to shore up private sector confidence after a protracted regulatory crackdown, indicating support for its real estate and internet industries, the region’s equities remained on a down trend as it slumped to its third consecutive month of losses. MSCI’s total return benchmark for the region’s equities fell close to 6% in the first quarter to underperform the region’s property sector.

The region’s equities continued to struggle for direction in February ahead of the looming Fed hike. However, Russia’s incursion into Ukraine put paid to investors expectations looking to buy the dip. The conflict and subsequent sanctions heightened selling pressure, as volatility rose across global capital markets. Energy prices and commodity prices surged amid concerns on the supply of Russian oil and gas as well as agricultural produce from the region. The likelihood of even higher inflation revived fear of a 70s-style stagflation, which will drag on the fragile recovery from the pandemic. Returns from Asia Pacific equities, as measured by MSCI, fell into the red as investors sold down riskier assets. Still, with inflation racing, bond markets ended little moved as investors remained braced for higher rates, given the Fed’s resolve to anchor inflationary expectations. However, the episode underscored the resilience of the region’s REITs, which managed to eke out a marginal gain as its defensive qualities shone.

The region’s markets opened 2022 in negative territory due to expectations of rising inflationary pressures, a potential reversal of quantitative easing, and higher interest rates. In its first meeting of the year, the Fed indicated that a rise in its benchmark rate will soon be appropriate with inflation running well above target and the labor market approaching maximum employment. This means the initial quarter-point rate-hike of the cycle is likely to kick in at the next Fed meeting in March. Asset purchases will also be cut to US$30 billion in February and come to a halt by March. Analyst are now penciling in a more aggressive tightening cycle of at least a 25-bps hike at each of the Fed’s meetings for the rest of the year. REITs bore the brunt of the negativity to underperform both bonds and equities in January.

Please find below the rebalancing results for the following GPR/APREA index series, which will become effective as of 20 December 2021 (start of trading):

• GPR/APREA Investable 100 Index
• GPR/APREA Investable REIT 100 Index
• GPR/APREA Composite Index
• GPR/APREA Composite REIT Index (indicated with an asterisk) 

GPR/APREA Investable 100 Index

INCLUSIONS

EXCLUSIONS

GPR/APREA Investable REIT 100 Index

INCLUSIONS

EXCLUSIONS

GPR/APREA Composite Index + GPR/APREA Composite REIT Index

INCLUSIONS

EXCLUSIONS

None

The wider GPR/APREA Listed Real Estate final dash in December brought total returns back into positive territory for the full year, largely on the performance of markets in Australia and Japan.

Australia’s property stocks have had an outstanding year in 2021 on strong earnings expectations. With inflation expected to remain manageable, the country’s central bank is under no significant pressure to tighten policy rates from the currently historic lows.

Gains were also registered across the rest of the region’s heavyweights, with the exception of Chinese stocks, which continued to remain pressured.

A series of asset sales underscored concern that equity investors will bear the brunt of losses as developers offload projects to repay debt.

However, signs are mounting that China will ease curbs on its property sector. To stem off downward pressure on the economy, the central bank trimmed banks’ reserve requirement ratio in December.

Please find below the rebalancing results for the following GPR/APREA index series, which will become effective as of 20 December 2021 (start of trading):

• GPR/APREA Investable 100 Index
• GPR/APREA Investable REIT 100 Index
• GPR/APREA Composite Index
• GPR/APREA Composite REIT Index (indicated with an asterisk)

GPR/APREA Investable 100 Index

INCLUSIONS

EXCLUSIONS

GPR/APREA Investable REIT 100 Index

INCLUSIONS

EXCLUSIONS

GPR/APREA Composite Index + GPR/APREA Composite REIT Index

INCLUSIONS

EXCLUSIONS

None

With the scheduled FOMC meeting slated to take place at the start of the month, Asia Pacific stocks were already bracing for a volatile ride from the get-go.

In a widely anticipated move, the Fed affirmed plans to dial back pandemic-era support for the economy, trimming asset purchases by US$15 billion a month. This puts the central bank on track to exit the program by mid-2022.

In the same mold, monetary authorities in South Korea and New Zealand also hiked its policy rates by another 25 basis points. While the moves were largely priced in, it presaged sentiment for the rest of the month.

The detection of the new Covid-19 Omicron variant – which health authorities observed as heavily mutated – sparked a sell off as investors raised alarms on the pandemic’s resurgence and its potential impact on economic growth. The region’s stocks, as measured by the MSCI Total Returns index, fell to its lowest from a year ago.

The region’s REITs were relatively more resilient, shedding 3% during the month to outperformed the region’s wider stock markets.

Overview

Asia Pacific equities reversed two months of consecutive declines to record their best monthly performance since December last year. The benchmark, which has been roiled by China’s regulatory crackdown in sectors from technology, education and property, rose 2.5% in August to outperform the regional property counters. Investors took heart at comments made from the Fed’s closely watched annual Jackson Hole meeting, after the Fed Chair reiterated that tapering does not mean tightening. The region’s markets also cheered after the Chinese central bank made its biggest weekly cash injection into the banking system since February. Still, the bounce came after July’s pummeling as it continued to lag the region’s property counters year-to-date with just 2.4% returned, as compared to the region’s real estate and REIT benchmarks tracked by GPR/APREA, which had risen 5.5% and 10.7,% respectively.

Listed Real Estate

The wider GPR/APREA Listed Real Estate rose 1.2% in August, after China’s property counter rose for the first time in four months. Opportunistic investors likely took a bet on the region’s oversold counters despite lingering pressure on China’s real estate sector, seeing light at the end of the regulatory tunnel as the scope for further substantial tightening narrows. Market expectations of a new rule to cap the land price premium at 15% also boosted confidence in the sector, which if implemented would cut developers’ cost of land purchases. However, Hong Kong counter did not fare as well, slumping by the most in the region. Thailand stocks rallied to lead the region’s gains after the government announced it will ease restrictions in Bangkok as well as other provinces next month, with infections and mortality rates falling as vaccinations picked up speed.

REITs

The GPR/APREA Composite REIT Index rose for a ninth consecutive month in August, gaining 1.0% to take the index to a new peak. This was mainly on the back of Australian REITs, which clocked the region’s strongest performance as the strength of its property market in recent months shored up valuations. However, the region’s other major REIT markets ended August mostly lacklustre, with those in Singapore falling 2.2% to lead the region’s declines. Defensive sectors stood out with Industrial, Healthcare and Residential REITs outperforming.

Meanwhile, Singapore is seeing heightened M&A activity, reinforcing a consolidation trend in the region. Hong Kong’s ESR Cayman has offered US$5.2 billion for the entire share capital of Singapore-based ARA Asset Management for US$5.2 billion, in a move that will create the region’s biggest and the world’s third-largest listed real estate asset manager. Both companies hold stakes and operate several REITs across the region. Meanwhile, Keppel Corp, a majority stakeholder and manager of Keppel REIT, tabled S$2.2 billion to take SPH, which operates SPH REIT, private.

Aside from the Philippines, REITs are also expanding their presence on the South Korean bourse. The nation debuted ts first REIT of the year – D&D Platform REIT – in August, a multisector REIT managed by conglomerate SK’s real estate arm D&D Investment. SK REITs, which started a book building exercise in the same month is poised for a September debut. The country expects another four listings to occur before the end of the year.

Outlook

Asia Pacific’s economic rebound has clearly taken a hit from the rapid spread of delta variant. As the surge in infection caseloads caught much of the region off guard, governments in most countries are switching tack from a zero Covid strategy, which has grown increasingly untenable in the face of the fast-moving delta variant. In an evolving battle with the pandemic, authorities are focusing on targeting a threshold vaccination rate that will allow a transition to an endemic stage of the pandemic and end the cycle of restrictions. However, the region’s REITs have remained resilient despite the uncertainty. With a Fed taper likely to precede any rate lift, the inability of the central bank to provide a clear timing signals that rates will remain lower for longer, which will continue to sustain interest in dividend plays. REITs has also remained immune to China’s regulatory wrath. The crackdown has not resulted in value destruction for China REIT proxies, which remained positive in August and has so far returned 4.5% this year. Logistics and industrial property REITs that were part of China’s first batch of nine REITs also rose through August.