S-Reits Tumble Amid Inflation Fears and US Economic Uncertainty
SINGAPORE – Shares of Singapore-listed Real Estate Investment Trusts (S-Reits) took a significant hit on Thursday, November 7, as concerns over the Trump administration’s economic policies spooked investors. Fears that these policies could exacerbate inflationary pressures in the US economy, coupled with expectations of a slowdown in interest rate cuts by the Federal Reserve, led to a sell-off in the sector.
Nearly two-thirds of the S-Reits and business trusts listed on the Singapore Exchange (SGX) ended the day lower, with the most notable declines seen in US office S-Reits and logistics-focused S-Reits with exposure to markets in Singapore, Australia, and Japan.
The iEdge S-Reit Index, which tracks the performance of S-Reits, dropped 1.3% on the day, coinciding with growing market concerns ahead of the Federal Reserve’s decision on interest rates, due on Friday, November 8.
The volatility in the S-Reit market is largely attributed to rising US government debt, stemming from tax cuts, and the possibility of a resurgence in inflation driven by economic stimulus measures under President Trump’s administration. These factors have contributed to a sharp increase in 10-year US Treasury yields, raising the pressure on bond markets globally, including Singapore.
“As Singapore bond yields tend to move in tandem with US Treasury yields, the yield curve is expected to steepen in the short term, leading to a sell-off in S-Reits as expectations of further rate cuts by the Fed are scaled back,” explained Vijay Natarajan, a research analyst at RHB Bank Singapore.
Volatile Outlook for S-Reits
Up until mid-week, market sentiment had been largely positive, with many investors optimistic about the outlook for S-Reits following the Federal Reserve’s decision to cut interest rates in September, marking the first reduction in more than four years. This move was seen as beneficial for the S-Reit sector by easing borrowing costs.
However, the outcome of the US presidential election and the uncertainty surrounding President Trump’s economic agenda have raised questions about the Fed’s future policy direction. Analysts suggest that the Trump administration’s fiscal policies could introduce more unpredictability into the US economy, potentially leading to higher inflation and delaying any further rate cuts.
Blerina Uruci, chief US economist at asset management firm T. Rowe Price, stated that the ongoing uncertainty about inflation and economic growth will be crucial factors in the Fed’s monetary policy decisions.
“Given the shifting economic landscape, the Fed is likely to take a cautious approach,” Uruci said, noting that the central bank will have a clearer view of the Trump administration’s economic policies only after its next forecast update in March 2025.
In the meantime, RHB’s Natarajan anticipates that interest rates will remain volatile in the short term, placing additional pressure on S-Reits, which may continue to face uncertainty as market dynamics evolve.
Impact of Trade Tensions
Some S-Reits, particularly those with exposure to China and Vietnam, are also facing heightened risks due to ongoing trade tensions. Analysts at DBS Group Research noted that S-Reits with a strong presence in these markets could underperform if the US resumes tariffs on Chinese goods.
S-Reits such as Mapletree Logistics Trust (MLT) and Mapletree Pan Asia Commercial Trust (MPACT), which derive significant portions of their revenue from Greater China and Southeast Asia, are seen as particularly vulnerable.
In addition, other analysts suggest that S-Reits with a diversified revenue base, such as CapitaLand Ascendas Reit and CapitaLand Integrated Commercial Trust, may offer more stability amid the current market turbulence, as they are less reliant on specific regional markets or sectors.
Long-Term Outlook: Cautious Optimism
Despite the short-term volatility, many analysts remain optimistic about the long-term outlook for S-Reits. Natarajan pointed out that during his previous term, President Trump expressed support for lower interest rates, which could provide a buffer for the real estate sector.
“We believe some of the recent steepening in long-term yields may be an overreaction, and the market is likely to stabilize in the coming weeks,” Natarajan said.
Xavier Lee, equity analyst at Morningstar, also maintained a positive view, highlighting that Singapore’s real estate market should remain resilient even in the face of global economic slowdown. He singled out Keppel Reit for its high-quality tenant base and strong portfolio of prime office assets, which should provide stability even during uncertain times.
As the market seeks clarity on the Fed’s next moves, analysts recommend that investors focus on larger, more diversified S-Reits to navigate the current volatility. With interest rate expectations in flux, these diversified players are expected to be less impacted by short-term market swings.
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