SINGAPORE REITs HAVE surrendered about a third of their gains in just six weeks after a spectacular 55% rally since the start of 2012 powered by the hunt for yield.
Following Fed chairman Ben Bernanke’s announcement last month that the US central bank will start to wind down its monetary stimulus programme later this year, REITs have been hammered as investors cashed out of what had been one of the best-performing sectors for several quarters in the Singapore market.
The expected tapering of the Fed’s quantitative easing programme led investors to believe interest rates will rise in the foreseeable future. Higher rates could mean increased risks for REITs as they require funds to pay for acquisitions or refinance existing debt.
Yields on 10-year Singapore government securities (SGS) jumped from about 1.4% in early May to a two-year high of 2.8% late last month. They are now holding around their long-term average of 2.6%.
The FTSE ST Real Estate Investment Index fell almost 19% in June from its 5-year high of 890.16 in mid-May. It is now holding just above 750.
With the selloff, REITs appear to be back in favour – at least among some analysts. To continue reading, click here