Friday, September 20, 2013

Tapering delayed, so now what? (CIMB)

 Tapering delayed, so now what?
The US Fed has postponed the tapering of monetary stimulus and this will have a positive near-term impact on S-REIT share prices. But we note that interest rates remain on an upward bias, and an aggressive investment stance on S-REITs may not be wise. We remain selective. Developers, another interest-rate sensitive sector, could be a better bet.

 We remain Overweight on developers, preferring stocks with less residential and more diversified exposures. UOL, CapLand and GLP remain our key picks. We remain Neutral on S-REITs but highlight AREIT and SUN as our top picks to benefit from this positive event. S-REITs that de-rated the most in the last three months could also rebound the most. These include KREIT, CDLHT and FCOT.

What Happened
The Fed has postponed the start of monetary stimulus wind down, and is now expected to begin tapering only in Jan 2014. This news has driven US long bond yields down overnight, with the 10YSGB down 30bps (236bps) from the last high.

What We Think
This is clearly positive news for interest-rate sensitive property stocks, and we expect positive share price movements for S-REITs and developers in the near term. However, we note that while the Fed tapering is delayed, interest rates remain on an upward bias. S-REIT yields could compress with the 10YSGB but investors should be mindful that S-REITs typically do not perform well in a climate of interest-rate uncertainty. We think that it is not where rates are at, but rather when will they stabilise and at what levels. S-REITs trade at c.396bp spread over the 10YSGB, 1x P/BV and FY14 yields of 6.3%, within the historical average – not cheap but also not expensive. For now, S-REITs look like a good trade, with those that de-rated the most in the last three months could also rebound the most (Figure 5). Our preference remains in the developer space, where a diversified structure and much cheaper valuations (30% discount to RNAV in the sector, c.0.5 s.d. below mean) allow for more downside protection. Firmer S-REIT share prices and more stable interest rates are also conducive for asset recycling growth. We see developer stocks as cheaper proxies to near-term asset reflation.

What You Should Do
Maintain Neutral on S-REITs with positive bias in the near-term, and Overweight on developers.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 19/09/13

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