REITs set to weather expected August market dip

In the past 14 years, the STI ended lower 12 times in August.

As August tends to be the weakest month for the Straits Times Index (STI), DBS analysts point out that REITs are relatively more resilient to the expected market correction.

According to DBS, this year should be no different, with Fed funds futures suggesting a rate cut in September.

“REITs will benefit as investors look for the first cut in interest rates, possibly in September,” DBS said.

DBS indicated that it foresees sideways volatility rather than a major correction from August to October, with valuations trending towards greater attractiveness.

“REITs benefit from interest rate transitioning from a high-for-longer to a gradually lower environment,” DBS said. 

“Companies with relatively higher gearing are also beneficiaries,” DBS added.

The seven REITs within the STI component stocks historically experience an average month-on-month dip of 1% and a 59% negative August frequency.

Ahead of rate cuts, DBS picked CapitaLand Ascendas REIT (CLAR), Mapletree Logistics Trust (MLT), Mapletree Pan Asia Commercial Trust (MPACT), and Mapletree Industrial Trust (MINT)

Non-REITs which DBS said would likely shelter investors from the August pullback would be Venture Corporation, ComfortDelGro, Frasers Centrepoint Trust (FCT), SATS Limited, and Sembcorp Industries (SCI).

DBS highlighted that these five stocks meet at least three of the following criteria: a favourable August seasonal trend, a positive earnings outlook, being a rate cut beneficiary, and a buy recommendation with at least a 10% upside to the target price.