REITs attract investors’ interest on rate cut expectations, say experts

The latest OPR cut in May has improved the index growth, says Wong


INVESTORS are attracted to real estate investment trusts (REITs) for yields as the prospect of a further interest-rate cut by the central bank looms next month.

The Bursa Malaysia REIT Index is expected to rise as Bank Negara Malaysia is predicted to further cut the Overnight Policy Rate (OPR) by year-end.

Areca Capital Sdn Bhd CEO and ED Danny Wong said the latest rate cut in May has improved the index growth.

“The lower OPR has boosted the higher returns for REITs, therefore, investors who are hungry for yields will go into REITs for investments.

“Looking at the index, it still has room to grow as another rate cut is expected by year-end,” Wong told The Malaysian Reserve (TMR).

He, however, stated that investors should also look at dividends when investing in REITs, instead of focusing on the yields.

The Bursa Malaysia REIT Index has increased 7.1% year-to-date, heading for the best year in at least a decade.

The index advanced 5.76% in the past 52 weeks, while MSCI AC Asia Pacific Index lost 0.78% in the same period.

It is 3.11% below its 52-week high on Aug 28, 2019, and 9.32% above its low on Dec 24, 2018.

The Bursa Malaysia REIT Index fell for the fifth day yesterday, reducing 0.46% or 4.57 points to 990.9. The move is the biggest since falling 0.55% on Sept 11, 2019, while the MSCI AC Asia Pacific Index advanced 0.42%.

Sunway REIT contributed the most to the index decline with 1.04% decrease, while AmFirst REIT had the largest drop, falling 2.06%. Meanwhile, KLCC REIT provided the biggest boost to the index, advancing 0.25%, while KIP REIT had the biggest gain, rising 1.2%.

Aberdeen Standard Investments (M) Sdn Bhd country head Gerald Ambrose (picture) said the growth of REITs in Malaysia and other countries are generally a result of the performance of other sectors in the capital markets.

“With the interest rates being brought down recently and a huge chuck of bonds in Europe are having negative yields, among others, people start to look into REITs which have visible dividends and yields.

“It’s quite possible the OPR be cut again this year, and when that happens, people will invest in REITs and usually the price of REITs will go up,” Ambrose told TMR.

Bursa Malaysia REIT’s members have a total market capitalisation of RM45 billion.

TMR reported in August that economists were beginning to lean towards a second OPR cut in 2019, over fears the US-China trade tensions would dampen growth.

The US Federal Reserve cut interest rates for the first time in 10 years and described the move as “mid-cycle adjustment”.

This follows US President Donald Trump’s tweet announcing 10% tariffs on another US$300 billion (RM1.26 trillion) worth of Chinese products effective Sept 1, 2019.

In retaliation, China devalued the yuan and stopped its purchase of US agricultural goods, leading the US to call China a currency manipulator.