Why Singapore REITs are in for a rocky 4-6 months
Due to higher inflation, US Fed rate cuts are pushed further out, from June to Sept 2024. Or cuts might not happen at all.
First, let's look at the macro.
My favourite Wall Street strategist, Stifel's Barry Bannister has called it accurately again.
As he expected back in 2023, US “supercore” inflation has surged higher in 2024, after trending lower in 2023.
Supercore inflation, measured as services inflation minus food, energy and housing rose 4.8% yoy in March 2024, or an annualised 8%.
This is disturbing, because it includes essential spending such as household necessities like car and housing insurance and property taxes.
These are unavoidable expenditures, not discretionary at all.
Should this continue, the possibility of rate hikes cannot be ruled out.
Impact on Singapore REITs
It doesn't look promising for REITs over the next 4 to 6 month, in my opinion.
This is because US Fed rate cuts, originally priced in for June, have been pushed further back to September 2024, by the US Fed fund futures market.
In case you didn't know, the lower the US interest rate, the better it is for Singapore REITs. This is because lower US rates will lower the cost of borrowing in Singapore.
Implications for Portfolio
Singapore REITs as a whole touched a bottom in Oct 2023.
That is actually close to the average entry price for the local REITs in my portfolio.
Now, the challenge is that since the Fed's fears have come to pass, and higher US inflation is back, rates may have to stay higher for longer.
That means that Singapore REITs may well test the Oct 2023 bottom.
If that happens, I would say it may very well be a fantastic opportunity for me to load up on more REITs.
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