FSA Guide to the Art of Income Investing - HK Version 2016 | Page 9
THE HORIZON
45%
P
World REITS vs US Treasuries
3 year performance
30%
15%
0%
28/2/13
31/10/13
30/6/14
28/2/15
31/10/15
-15%
Index : The BofA ML 1 10 Year US Treasury TR
Index : MSCI World/REITS GTR
315%year performance
10%
5%
0%
28/2/13
31/10/13
30/6/14
roperty remains a solid opportunity for income investors,
with property securities in both the UK and US continuing
to perform well in terms of yields versus US government
debt. With tenant demand remaining high and vacancy rates
low the fundamentals of the market remain strong, despite
interest rates beginning to rise in the US and showing the
potential to rise in the UK.
In Asia, Singapore REITs remain attractive thanks to a
stable economy and strong regulations, although in Hong Kong
the picture is less attractive, with a reduction in visitors from
mainland China and weaker domestic consumption posing a
threat to the retail sector. Elsewhere in Asia, Japan is balanced
between a weak household sector on the one hand and a
stronger corporate sector on the other, with zero interest rates
helping to shore up the market for property securities.
In Europe, strong investor demand fueled by continuing low
interest rates has led to overinflated property valuations. This,
coupled with limited tenant demand, is creating something of a
headwind for European property securities.
T
US High Yield vs US Treasuries
28/2/15
31/10/15
-5%
PROPERTY INCOME
GLOBAL HIGH YIELD
he high-yield market continues to be supported by the
onslaught of yield-chasing investors. However, given the
precarious nature of the commodities sector in particular,
single-digit returns are more likely to be the mark of high-yield
securities than their erstwhile double-digit returns.
While defaults are predicted in high-yield energy stocks in
particular, that risk is already broadly priced in. If the defaults
cannot be contained within the energy sector, however, the
impact could be more significant. With everything from oil
services to consumer-facing industries likely to be impacted by
persistently low commodity prices, default risk could become
more widespread.
While the US Federal Reserve has begun the process of
raising interest rates, indicating that economic stability in that
country at least is assured, turbulence remains an issue across
the globe, with the threat of a global recession remaining.
In light of this, a wave of risk aversion could hit the high-yield
sectors, as investors who have taken on more risk in their bid to
achieve some kind of a return take flight back to quality.
Index : The BofA ML 1 10 Year US Treasury TR Index : The BofA ML US High Yield TR
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Fund Selector Asia Guide to the Art of Income Investing March 2016
09