Weekly Commentary: 01 November 2021 – 07 November 2021
As can be seen below, positive gains from most of the major indices for four consecutive weeks. Growth stocks as loosely represented by the NASDAQ Composite Index led the big three indices with a 2.72% weekly gain while the S&P 500 and the DJIA trailing behind with a 1.35% and 0.40% increase each. Both Hang Seng and STI reported negative returns of -2.87 and -0.22%. Overall market sentiment is still strong although the global HY-IG spread expanded slightly to 2% and CBOE Volatility Index (VIX) rose by 66 bp to 16.26%. Both are still below their 30-day moving average of 2.02% and 19.01% respectively. Most of the S&P 500 sectors also delivered positive returns with the exception of Communication Services (-1.71%). Materials (+1.31%) and InfoTech (+0.12%) in addition made up the bottom three sectors for the week. In the other hand, the best performing sectors were Real Estate (+2.9%), Consumer Discretionary (+2.69%), and Healthcare (+2.39%).
The yield curve the flattened as the U.S. 2-year Treasury yield maintained at 0.48% and 10-year fell by 11 bp to reach 1.55%. The 10Y-2Y US Treasury yield spread dropped to 1.07% by Friday. The drop in longer-term yield seemed to be the major contributor of growth and Real Estate stocks outperformance last week. Inflation is worrying and lying on a level not seen since the global financial crisis in 2008. The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) indicated that the inflation rate by the end of September was back at 5.4% after dropping slightly to 5.3% in August. Furthermore, the Fed’s officials seemed to be divided on hiking the interest rate and the view of a transitory inflation from its September meeting minutes.
Positive returns from global REIT markets with the exception of Australia, HK, France, and Germany. But the 12-month yield spreads are positive overall as well and still favorable towards REIT’s forward total return. Back at home, the iEdge S-REIT Index returned 1.14% with mostly positive returns from the S-REITs sectors – Healthcare (+2.55%) and Office (+2.1%) delivered the best weekly gains while Hospitality (-0.01%) and Industrial (+1.04%) lagging behind. Hospitality underperformance was largely reactionary to Frasers Hospitality Trust (-4%) FY21 results released last week that reported earnings slowdown year-on-year.
The 7-day moving average of total COVID-19 cases rose to 3777 from 3413 of the previous week, reaching over three times the peak last year. Although virus development and the pace of recovery going forward will dictate the rebound, S-REITs in the Hospitality, Office, and Retail segment are great investment opportunity for investors today. Most are undervalued In terms of Price-to-BV and Price-to-NAV due to the current uncertainty in the market, The long-term outlook remained positive as the Singapore Government has also reiterated its plan to stay connected to the world with effective safeguards and border restrictions going forward. This includes the vaccinated travel lanes (VTLs) that currently available for nine countries – Canada, Denmark, France, Germany, Italy, the Netherlands, Spain, the United Kingdom, and the United States, and are to be extended to three additional countries from mid-November onwards – Australia, Switzerland, and South Korea. VTL quota of 3,000 travellers daily will be increased as well to 4,000 daily. These are overall good news and will be a boost to the sectors still in recovery from the pandemic.
Globally, REIT is the best inflation-adjusted asset classes for the past 20 years (6.4% total return CAGR vs stocks’ 5.5%). US-REIT dividend growth have outpaced annual inflation rate as measured by the Consumer Price Index except in 2002 and 2009 (shortly after the GFC). In Singapore, the iEdge S-REIT Index has returned 6.4% annualised for the past ten years in contrast to the average core inflation rate of 1.32%, outperforming the STI’s 3.5%.
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