S-REITs Weekly - UOB Kay Hian 2020-06-15: Corrections After 3 Consecutive Weeks Of Strong Gains

S-REITs Weekly - UOB Kay Hian Research | SGinvestors.io CAPITALAND MALL TRUST (SGX:C38U) FRASERS CENTREPOINT TRUST (SGX:J69U) FAR EAST HOSPITALITY TRUST (SGX:Q5T) ASCOTT RESIDENCE TRUST (SGX:HMN) KEPPEL REIT (SGX:K71U)

S-REITs Weekly - Corrections After 3 Consecutive Weeks Of Strong Gains



UOBKH S-REIT Index retraced 4.1% to 249.0 last week (8-Jun to 12-Jun).



SPOTLIGHT – MONETARY POLICY

  • Jerome Powell: “We're not thinking about raising rates. We're not even thinking about, thinking about raising rates.

The Fed continues to provide accommodation.

  • The Fed maintained the target range for the Fed funds rate at 0.00-0.25% after the FOMC meeting on 9-10 June. It will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace (US$80b in treasury bonds and US$40b in mortgage securities).

Grim outlook for the job market.

  • The US economy went from the lowest unemployment in 50 years (3.5% in February) to the highest unemployment in 90 years (14.7% in April) over a period of two months. An estimated 25m jobs were displaced during the COVID-19 pandemic, wiping out all the gains since the Global Financial Crisis in 2008.
  • Some economists believe that about half of the laid-off workers are unlikely to return to their former employers. The unemployment rate was 13.3% in May 20. If we include large number of workers who reported themselves as employed but absent from their jobs, the unemployment rate would be higher by about 3ppt at 16.3%.
  • On average, FOMC participants expect US unemployment rate to hit 9.3% by end-20, 6.5% by end-21 and 5.5% by end-22.

Zero interest rates for two and a half years.

  • The Fed wants to provide an environment in which displaced workers have the best chance to go back to their old jobs or find new ones. All 17 FOMC participants (100%) expect to hold Fed Funds Rates near zero in 2021 and 15 of them (88%) projected Fed Funds Rates near zero till 2022. This means another two and a half years of zero interest rates.

Assurance of dovish disposition positive for S-REITs.

  • The Fed’s intention to gradually nurse the labour market back to health entails many years of policy accommodation. Investors’ interest will be kept fixated on yield plays, such as S-REITs.


Our top-5 picks for S-REITs are as follows:


CapitaLand Mall Trust (SGX:C38U) (BUY/ Target Price: S$2.60).


Frasers Centrepoint Trust (SGX:J69U) (BUY/ Target Price: S$2.85).


Far East Hospitality Trust (SGX:Q5T) (BUY/ Target Price: S$0.62).


Ascott Residence Trust (SGX:HMN) (BUY/ Target Price: S$1.16).


Keppel REIT (SGX:K71U) (BUY/ Target Price: S$1.30).






Jonathan Koh CFA UOB Kay Hian Research | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2020-06-15
SGX Stock Analyst Report BUY MAINTAIN BUY 2.600 SAME 2.600
BUY MAINTAIN BUY 2.850 SAME 2.850
BUY MAINTAIN BUY 0.620 SAME 0.620
BUY MAINTAIN BUY 1.160 SAME 1.160
BUY MAINTAIN BUY 1.300 SAME 1.300



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