Will a looming recession in the US shake S-REITs?

The US yield curve—an indicator of recession—has been inverted since 1 April.

The last time Singapore saw an inverted yield curve, Singapore real estate investment trusts (S-REITs) started to underperform and the country eventually fell into recession. During the Global Financial Crisis, S-REITs corrected 56.4% and underperformed by 18.4% during the two years after the yield curve started to invert.

This is why red flags have been raised amidst the inversion of the U.S. yield curve since 1 April.

As an inverted yield curve has been a reliable indicator of recession, experts believe that the US and the global economy might fall into a slump.

UOB Kay Hian, however, allayed fears of S-REITs, saying the slope of the yield curve in Singapore remains upward sloping, with the 10Y-2Y term spread staying marginally positive at 0.5%.

The analyst added that REITs, particularly retail and hospitality, will continue to benefit from Singapore’s easing of COVID-19 measures.

Among S-REITs, UOB Kay Hian said the best to invest in would be Ascott Residence Trust (ART SP), Frasers Centrepoint Trust (FCT SP), Mapletree Commercial Trust (MCT SP), and Mapletree Industrial Trust (MINT SP).

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