Potential rate cuts could boost Singapore Reits, analyst says

SINGAPORE: Federal Reserve chair Jerome Powell commented that “the time has come for policy to adjust,” at the Jackson Hole economic symposium in August.

According to Zane Aw Yu Xuan, a research analyst at Phillip Securities Research, this has led to speculation about potential interest rate cuts, which could benefit Singapore’s real estate investment trusts (S-Reits) with lower borrowing costs and increased property valuations, The Business Times reported.

The iEdge S-Reit Index, considered the benchmark for S-Reits, has gained over 4% in the past month as investors anticipate these rate cuts. This index is a free-float, market capitalisation-weighted indicator that measures the performance of Singapore’s Reits. With the possibility of lower interest rates on the horizon, the index is showing positive signs of recovery.

Mr Zane noted that, from a technical analysis perspective, the iEdge S-Reit Index recently broke past the neckline resistance of an inverse head and shoulders pattern at 1,050. This is typically seen as a signal of a bullish reversal, suggesting that the index could be entering a period of upward movement.

The Moving Average Convergence Divergence (MACD) indicator has also been showing increasing momentum. It has produced a series of higher lows and higher highs, staying above the zero line—a sign of a strengthening trend. 

The fundamentals of S-Reits also appear robust. If the anticipated interest rate cuts come into effect, property valuations may rise, which would boost the net asset value (NAV) of these trusts. A higher NAV often attracts more investment, as it reflects stronger underlying assets. This could lead to more capital inflows into the sector, giving the index a further push.

Sectors like retail and hospitality Reits are also expected to benefit from the broader economic recovery. Tourism is picking up across the region, and events like the upcoming Formula 1 race in Singapore are likely to drive demand in the hospitality sector. This could add further momentum to the recovery of S-Reits focused on these sectors.

Looking ahead, the Reit index is projected to reach a target level of 1,135, which coincides with a swing-high resistance level set in December 2023. 

/TISG

Read also: DBS: CDLHT and FEHT likely top beneficiaries of expected Sept rate cuts

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