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Property the Relative Bright Spot Amid Asia Rout: Taking Stock

The MSCI Asia Pacific Real Estate Index slipped 1.2% in May, an oasis compared with the 6.3% slump in the wider regional gauge.

Property the Relative Bright Spot Amid Asia Rout: Taking Stock
The DBS Group Holdings Ltd. building, left, and Standard Chartered Plc building, center, stand in the central business district of Singapore. (Photographer: Ore Huiying/Bloomberg)

(Bloomberg) -- For equity investors looking for a place to hide in Asia this past month as trade hostilities raged, property stocks are as close as they could get to a port in the storm.

The MSCI Asia Pacific Real Estate Index has slipped 1.2% in May, a relative oasis compared with the 6.3% slump in the wider regional gauge, led by a near 11% rout in technology stocks.

Property the Relative Bright Spot Amid Asia Rout: Taking Stock

Within the sector, a cohort of Australian and Japanese real estate shares are leading gains, with Australia’s Stockland and Mitsubishi Estate Co. in Japan up 18% and 8% respectively.

“From a defensive perspective, within the equity space what we are looking for is stocks that offer sustainable cash flow, which in turn also potentially from a dividend yield perspective will give a buffer,” said Louisa Fok, China equity strategist with Bank of Singapore, at a press conference in Hong Kong last week.

Speaking of benefiting from real estate, the Bank of Japan’s investments in domestic REITs seem to be paying off. The central bank disclosed J-REIT holdings with a market value of 626 billion yen ($5.7 billion) on May 29, providing unrealized gains of 22% over book value at the end of March, according to Nomura Holdings Inc. analyst Tomohiro Araki. The BOJ also received dividends at a yield of 3.4% based on market value, he said in a note the same day.

“At present, J-REITs have not been a bad investment for the BOJ,” Araki said.

The resumption of trade war hostilities between the U.S. and China, and a gloomier global economic outlook, have pushed global bond yields lower this month as investors sought out havens.

Property and utilities stocks are traditionally seen as bond proxies in the equity markets given their defensive qualities and dividend yields. The Hang Seng Property Index has a projected 12-month dividend yield of 3.6%, according to data compiled by Bloomberg.

In the real bond market, the yield on 10-year Treasuries fell as low as 2.21% on Wednesday, almost 50 basis points below where they started the year, with investors pondering what could take the measure below 2% for the first time since 2016.

The spread between 3-month and 10-year yields hit its most inverted level since 2007, as the recession signal intensified. Fears an inverted yield curve will herald a U.S. economic recession have stalked global markets for much of this year.

Stock Market Summary

  • MSCI Asia Pacific Index ex-Japan little changed
  • MSCI Asia Pacific Index down 0.3%
  • Japan’s Topix index down 0.7%; Nikkei 225 down 0.6%
  • Hong Kong’s Hang Seng Index down 0.4%; Hang Seng China Enterprises up 0.5%; Shanghai Composite down 0.8%; CSI 300 down 1.1%
  • Taiwan’s Taiex index up 0.5%
  • South Korea’s Kospi index up 0.4%; Kospi 200 up 0.6%
  • Australia’s S&P/ASX 200 down 0.7%; New Zealand’s S&P/NZX 50 down 0.2%
  • India’s S&P BSE Sensex Index up 0.3%; NSE Nifty 50 up 0.2%
  • Singapore’s Straits Times Index down 0.8%; Malaysia’s KLCI up 0.5%; Philippine Stock Exchange Index up 1.2%; Thailand’s SET up 0.4%; Vietnam’s VN Index up 0.2%
  • S&P 500 e-mini futures up 0.2% after index closed down 0.7% in last session

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cormac Mullen

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