The risk that Singapore real estate investment trusts (S-Reits) will face significant price corrections in the coming year is limited as long as global borrowing rates stay low, Credit Suisse said at an investment outlook for 2020 on Monday.
Strategists at the Swiss wealth manager noted unit prices for S-Reits remain supported even though the near-term upside could be more constrained after the asset class’ 20 per cent rally this year and with yields of 10-year Singapore government bonds close to historical lows.
That said, Credit Suisse is of the view S-Reits with strong acquisition pipelines and those with opportunities to recycle and enhance their assets are likely to outperform.
As it stands, the local Reit market has been undergoing consolidation since the start of the year.
On Monday, a S$1.58 billion merger between Frasers Logistics & Industrial Trust (FLT) and Frasers Commercial Trust (FCOT) was proposed by the respective managers of the property trusts.
The prospective merger will be undertaken through a trust scheme of arrangement, with FLT acquiring all units of FCOT for about S$1.54 billion.
While the low interest rate environment could keep prices for S-Reits stable but their yields capped, the lower borrowing costs are likely to limit upside for Singapore’s three banks, Credit Suisse said.
In 2020, Singapore equities are expected to perform in line with regional markets due to a muted growth environment, which Credit Suisse wrote, “continues to cap upside for the market despite their favourable valuation”.
Credit Suisse has forecast the Singapore market to register earnings growth of 3.5 per cent in the coming 12 months.
With an average dividend yield of 4.4 per cent, Singapore stocks are expected to be in demand despite modest economic growth being expected.
Investors looking for income generating assets will see the city-state’s listings finding favour among those chasing yield, which provides downside support.