REITs set to outperform equities as investors go in search of yields
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The Stock Exchange of Thailand continues to stay in positive territory, gaining around 7 per cent year to date, despite the sluggishness over the last two weeks. Nevertheless, the SET Index still failed to breach the psychological 1,400 level.
Month-to-date, the market leaders were PTT, PTT Global Chemical, Siam Cement, Charoen Pokphand Foods and CP All. The laggards were Bumrungrad Hospital, Advanced Info Service, U City, Banpu and Minor International.
Foreign investors bought Bt11.7 billion worth of Thai shares from March 1-17, leaving the year-to-date net-buying position at Bt3.6 billion.
Since the beginning of the year, the performance of real estate investment trusts (REITs) has been well ahead of equities. We believe the trend will continue as global investors seek yields amid negative interest rates in both Europe and Japan, coupled with low rates elsewhere (including Thailand).
On average, equity returns in developed markets remain in the red to the tune of minus 3 per cent year to date. In contrast, emerging-market stocks outperformed their developed-market peers with a year-to-date gain of around 3 per cent.
Interestingly, global REIT prices have surged on the back of investors seeking yields and the US Federal Reserve’s decision to delay its rate increases in 2016. The S&P Global REIT, which is a benchmark of publicly traded equity REITs listed in both developed and emerging markets, has risen by almost 6 per cent since the beginning of the year.
Going forward, REITs remain appealing on a selective basis given their high yields and resilient revenue streams.
The top 5 REITs recommended by the DBS REIT team in Singapore are (1) Mapletree Greater China Commercial Trust; (2) Frasers Centerpoint Trust; (3) Ascendas REIT; (4) CapitaLand Retail China Trust; and (5) Mapletree Logistics Trust.
These REITs are expected to pay regular dividends, with potential for further growth arising from the expansion of their asset portfolios. Their yields range from 6 to 8.4 per cent.
Investing in REITs comes with risks, and we advise investors to study our research reports on REITs before making any investment decision.
Tisco Securities
“Foreign investors bought Bt11.7 billion worth of Thai shares from March 1-17, leaving the year-to-date net-buying position at Bt3.6 billion.”
The Stock Exchange of Thailand may soon re-test the 1,400 points resistance level after the US Federal Open Market Committee left interest rates unchanged, as expected, but cut the number of planned increases this year to two from four previously.
The Fed’s dovish stance weakened the dollar |but helped boost appetite for risk assets including Asian currencies and equities. Also positive for the |Thai market is the recent strong rally in global oil prices.
Nonetheless, we remain cautious on the SET’s |outlook this year and anticipate heavy profit-taking above 1,400 points. Foreign-investor positioning remains very underweight (at 29 per cent, an 11-year low).
The key concerns of clients, expressed during |our trip to Europe last week, were the same: slow |economic recovery, high household debt and low industrial capacity utilisation. These factors, coupled with persistently weak exports and worse-than-expected drought, are likely to lead to a downgrade of the 2016 GDP growth forecast when the Bank of Thailand’s Monetary Policy Committee meets on Wednesday.
We continue to favour tourism plays such as AOT (Airports of Thailand), AAV (Asia Aviation) and BA (Bangkok Airways) after February data showing a 16 per cent year-on-year rise in foreign tourists to a new monthly record of 3.1 million. Chinese tourists led the way, with 23 per cent year-on-year growth, but the most interesting part of the data was the 14.3 per cent year-on-year jump in arrivals from Russia – the first positive figure in nearly two years.
In the banking sector, TCAP (Thanachart Capital) remains a mid-term “buy” on recovery of legacy non-performing loans and auto-loan quality, NIM (net interest margin) expansion, tax shields to improve RoE (return on equity) and capital/LLR (loan loss reserve) buffers from the second half of 2015 to the first half of 2018 and superior dividend yield.
We also have a “buy” rating on TMB due to its solid growth prospects and lower cost of funds backed by its increasing penetration of the SME (small and medium-sized enterprises) segment.
Elsewhere, we have revised up our target price for ROBINS (Robinson Department Store) by 8 per cent to Bt52 after its chief executive officer’s surprise announcement that the retailer is on track to achieve 4 per cent SSSg (same-store sales growth) in the first quarter of 2016.
This is mainly due to its flexible product-mix strategy and strong performance of its Lifestyle Centres. With the expansion of Lifestyle Centres (two more were opened in the fourth quarter of 2015), ROBINS now derives 45 per cent of its net profit from rental space.
Questions & Answers
Q.Which specific factors are contributing to the appeal of REITs for investors at present?
Which specific factors are contributing to the appeal of REITs for investors at present?
Global investors are seeking yields due to negative interest rates in Europe and Japan, alongside low rates elsewhere. The US Federal Reserve's decision to delay rate increases in 2016 also contributed to surging global REIT prices.
Q.What is the anticipated range for the dividend yields of the five recommended REITs?
What is the anticipated range for the dividend yields of the five recommended REITs?
The five recommended REITs, including Mapletree Greater China Commercial Trust and Frasers Centerpoint Trust, are expected to offer dividend yields between 6 and 8.4 per cent.
Q.What are the main concerns foreign investors expressed regarding the Thai market's outlook?
What are the main concerns foreign investors expressed regarding the Thai market's outlook?
Foreign investors are concerned about slow economic recovery, high household debt, and low industrial capacity utilisation. Persistently weak exports and a worse-than-expected drought are also factors.
Q.Which specific factors led to an upward revision of Robinson Department Store's target price?
Which specific factors led to an upward revision of Robinson Department Store's target price?
The target price for ROBINS was revised up due to the retailer's expectation of achieving 4 per cent same-store sales growth in Q1 2016. This was attributed to a flexible product-mix strategy and strong performance of its Lifestyle Centres.
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