Where Should I Invest in Uncertain Times like NOW

Equity market is getting weaker and bond yields are falling, so where should you put your money when the market condition is uncertain? Isaac Chow from Affin Hwang Capital suggested investors to consider Malaysia real estate investment trusts (M-REITS) as an investment alternative.

The comparatively low correlation with other assets such as FBM KLCI and FBM70 makes M-REITs a good choice to diversify investors’ portfolios. For four of the last five years, REITs with average yield of 5% have outperformed the local benchmark indices.

While bond yields are falling, REITs have been tracking the movements of the 10-year MGS yield and they always trade at a spread. “The current spread is about 150 basis points to the MGS, so they have not seen excessive compression despite the strong share price performance,” says Chow. Also, high gearing REITs could be benefited from the cut in overnight policy rate (OPR), one of the reasons caused MGS yields to drop.

What are the other reasons to invest in REITs?

1.     High dividend yield

In order to take advantage of the tax system, REITs usually distribute at least 90% of its earnings.

2.     Low Initial Investment

With few thousand Ringgit, you can diversify your portfolio with shopping malls, office towers, industrial warehouses and even hotels.

3.     Liquidity

Which one is easier to sell? A physical property or REITs? To sell a property you probably have to go through the lawyers, agents and of course your potential buyers, it’ll take at least a few weeks.

4.     Professional management

Properties owners hire professional and experienced people to manage their properties. With REITs, you can just let the experts handle and manage your properties.

Some investors may worry that oversupply of retail or office properties, weak consumer sentiment, and slowing economic growth could affect the REITs’ earnings. Some others may think that real estate development is not exciting enough as they prefer to invest in industries such as technology which could bring higher growth in earnings.

However, according to Koh Shern-Ling, portfolio manager at Principal Real Estate Investors, global REITs today include e-commerce, cloud computing and telecommunication towers. More warehouses and data centre spaces will be needed for e-commerce and cloud computing. Also, considering the growth of new technologies such as 5G, more telecommunication towers are needed to support the higher speeds.

With all that REITs are a more attractive preposition to other asset classes. In each transaction, please do seek advise of a financial expert or advisor.

Reference:

Vanessa Gomes, Favourable investment in uncertain market conditions, The Edge Malaysia, issue 1278

Kahirani Afifi Noordin, Look for interesting themes, says Principal Real Estate Investors, The Edge Malaysia, issue 1278

The Complete Guide to REITs in Malaysia https://dividendmagic.com.my