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Hot Sector – Seeking shelter in REITS

Wed 23 Jan 2019

With the uncertainties abound in the broad market, equity-based funds may have to seek shelter in either defensive or income-based stocks.

Among the latter, real estate investment trusts (REITS) which pay average dividend per unit of around 6% yearly have been recommended by analysts as viable stocks to hold in the current market environment.

Is the REITS sector a viable sector to trade and hold for elite traders at the current market juncture and which REIT is likely to be the best candidate?

According to a recent analyst report on the sector, selected Malaysian REITS should remain resilient due to their long-term leases or prime assets.

However, the report says that it expects anticipated organic growth (via rental reversions) for the retail and office segments to be subdued due to rising occupancy risks from the oversupply of retail malls, offices and hotels.

Their income and expansion growth via new assets would also be slower due to the limited large asset pipeline.

REITS which are seen strong are those holding prime retail malls which sit on prominent locations as they would attract high shopper traffic and consequently, high tenants demand for the malls’ retail space.

The report also prefers office assets with long-term tenants which entail lower occupancy risks.

However, it is cautious on neighbourhood malls and multi-tenanted offices in the Klang Valley which it says would be at higher risk to be impacted by the oversupply of retail and office space.

In a nutshell, the growth prospect for REITS appear to be limited to around single-digit due to the oversupply of shopping malls, office towers and hotels in the Klang Valley, which would increase occupancy risks and exert more pressure on upward rental adjustments.

Interest in REITS could thus be defensive in nature at this juncture as they could also be affected by a rising interest rate environment (though subdued locally) as their yield would be competing with other yielding assets like cash.
However, if the market were to go to further downside, could REITS be safe harbour and how long should you hold the REITS?

Care must be taken by elite traders to hold or trade in only the strongest REITs and reap their yearly yield of around 6% -7% (or price appreciation as herd mentality will rise in a bearish market) while waiting for the right time to exit them when the market condition changed from bearish to bullish.

Which are the strongest REITs to hold and trade at the current market juncture?

Look at the table below for the clear answer and keep tab of the critical levels given to avoid holding the wrong sector later when market condition changes.

Strongest REITS to hold and trade in now


Note: Certain info presented in the tables above has been redacted to comply with the agreement with elite members of the mPower Algorithm program and mPower Trading program and certain institutional clients. The above analysis reflects our personal view only and is subject to terms of use. Please refer to the full report inside for the complete info.


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