Singapore REITs or S-REITs bottomed around end October 2023 and has rallied up 7% in November. The iEdge S-REIT Leaders Index is now trading around 1,100 level after bouncing off the 52-week low of 989. After such a strong performance in November, will S-REITs continue to rally and is now a good time to buy S-REITs?
Read: S-Reits rebound 7.4 per cent in November, best month in 3 years
December US CPI and FOMC meeting
A lot is riding on this month’s FOMC meeting happening this week on 13 Dec, which follows US CPI data release on 12 Dec. Since S-REITs are sensitive to interest rates (higher interest rates means more expensive home loans and vice versa), where the Fed is headed with rates are super important.
So far, the expectations are that inflation will continue to meet or even come in below expectations. If so, the market might pull forward rate cut expectations earlier. Currently, based on CME FedWatch Tool, the market expects the Fed to start cutting rates as early as Jan 2024 and continue to cut 3 more times in 2024. Personally, I think that’s optimistic.
S-REITs valuation
Either way, I think S-REITs are still attractively valued at these levels vs other assets, maybe with the exception of Treasury bonds. According to the latest factsheet on SGX website (dated 30 Nov 2023), the iEdge S-REIT Leaders Index and iEdge S-REIT Index are trading at 6.19% and 6.6% dividend yield respectively. Compared to risk-free T-bill and SSB yields of 3.74% (7 Dec auction) and 3.07% (Jan 2024 SSB) respectively, the risk premium of ~2.5-3% seems attractive to me.
S-REITs are also attractive compared to the S&P 500, which has rallied likewise in November and currently sports an earnings yield of 3.94% (P/E slightly over 25x).
What if I’m wrong
If we get bad inflation numbers (US CPI re-accelerates) and the Fed turns hawkish again, S-REITs could bump up against the 1,100 level and turn back downwards.
However, I see the 990-1,000 range as a pretty strong support level for S-REITs. Even if S-REITs fall back down to those levels, I would see that as a second chance to load up more REITs, be it REIT ETFs or individual S-REITs.
Personally, I think the chances of inflation re-igniting seems low and the Fed might continue to stay pat or even turn slightly dovish. If that happens, I think S-REITs have more legs to continue higher towards the end of the year.
How to invest in S-REITs
The most straightforward way to invest in S-REITs is to buy shares directly from the Singapore Exchange (SGX) in board lots of 100 shares. However, buying individual REITs is not for the faint-hearted and requires thorough research into the REIT and its financials beforehand. Here’s a list of S-REITs from REITSWEEK.
Another way is to buy REIT exchange-traded funds (ETFs) listed on SGX. REIT ETFs include a basket of REITs, so you can get instant diversification by buying just one counter. Here’s a list of S-REIT ETFs from REITAS. See my review of the CSOP iEdge S-REIT Leaders Index ETF (SGX:SRT/SRU).
Alternatively, you can also consider Syfe REIT+ portfolio, which benchmarks against the iEdge S-REIT Leaders Index. See my review of Syfe REIT+ if you want to learn more. If you’re interested, you can sign up through my referral link.
How about you? Are you buying S-REITs at these levels?
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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.
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