A forex broker requires a good amount of liquidity. For them, this is just as important as having a well-stocked medicine cabinet as a doctor. But what exactly is liquidity, and why is it so important for brokers? Well, we are just about to find out.
What Is Forex Liquidity and Why Is It Important?
Forex liquidity is the ability of a currency pair to be purchased and sold, without creating too big of an impact on the exchange rate. A currency pair is seen as “highly liquid” when you can buy and sell it with ease, creating a fair amount of trading activity. Liquidity is a key factor in ensuring a trade remains profitable. The bigger the liquidity, the more the transactions can flow, leading to much better prices, quicker execution, and cheaper spreads. Working with more liquidity can ensure the forex broker enjoys extra security with their trades. They can make a transaction quickly and at lower costs, making sure that the trends prevail. This is very important for brokers, as it helps them satisfy the needs of their customers. Brokers with high liquidity can also trade assets multiple times per day. This means that there is an increased chance for profit, as it keeps demand and trading volume very high. Without forex liquidity, a broker can suffer the consequences of price fluctuations. When there is no liquidity, it is not easy to exchange the assets, therefore muting the activity on the market. This can lead to great losses.
What Is Forex Liquidity Affected By?
The factors that can affect forex liquidity are:
1. Broker Operation Level
Forex liquidity is affected by a variety of things. The scale of operation for the broker is the most important. For example, if you are working with a well-known broker with a diversified portfolio, you may end up getting more liquidity. On the other hand, if they do not have that big of a reputation, the liquidity may also be much lower.
2. General Marketplace
Liquidity may also be affected by the general marketplace. For example, those dealing with more popular pairs of currencies may have more liquidity, mainly because they
have more funds available for trading. If the currencies are less popular, the trading volume is lower, potentially negatively affecting the trades.
3. Type of Client
The client types that the brokers interact with can also affect liquidity. For example, if the broker works mostly with institutional investors, they will be more likely to have access to more market liquidity. Forex brokers accepting clients from the United States will be more prone to sign institutional investors. Retail investors can bring a decent amount of liquidity, but it will still be lower in comparison to the former.
The Bottom Line
Liquidity is important for brokers as it gives them a better chance of making an easy, profitable trade. Without enough liquidity, it is very easy for a trade to stagnate or end up in a loss.
Money and Me: Is 2023 the year of recovery for S-REITs?
As we wrap up 2022, who are the S-REITs winners and losers coming out of this year’s market turbulence? Find out the answers with Dan Koh and Zia-ul Raushan as they invite Kenny Loh, REIT Specialist and Independent Financial Advisor to share how he thinks S-REITs have performed so far.
They also discuss the opportunities and risks that 2023 presents for this industry and the sectors that stand to benefit the most from China’s reopening of its economy.
Timestamps
0:17 Intro
1:25 Wrap up of the S-REIT performance in 2022 and Kenny’s thoughts of the market now
REITs still fared better than other asset classes, at -10%, compared to for example the S&P 500 and bonds
2:35 Winners & Losers of this year S-REITs
No clear winner, but Hospitality Trusts fared better than the other sectors
Most REITs suffered losses, except CDL and Far East Hospitality Trusts with single digit gains.
Manulife US REIT dropped -50%, Digital Core REIT -47% and Prime US REIT -45%. Worst performing sector this year is the US Commercial Office sector.
3:27 S-REIT market outlook in 2023. With recession looming, what does a recession mean for S-REITs?
A US Recession does not mean a recession in Singapore.
S-REITs may not be impacted as a whole. It depends on S-REITs with portfolio presence in affected countries (e.g. a US recession will affect S-REITs with US presence).
Also dependent on the sector
5:09 Fed Fund rates poised to reach 5% next year. Is the slowing down of the rate hike good for S-REITs?
Good for S-REITs. The rapid rate hikes this year are too uncertain. A slowing down gives more predictability and visibility for REITs.
6:41 Do you think S-REITs factored in additional rate hikes in their share price valuation?
Yes, looks like it has factored in a Fed Fund 5% rate. The recent lowering of government bond yields has increased yield spread.
7:25 Any indication of how S-REITs are to perform next year?
Most REITs are healthy, but some REITs have ‘warning signs’, for example high gearing ratio REITs like ARA Hospitality Trust or low ICR.
8:31 8% GST Rate Hike: What impact will it have on S-REITs?
There should be low/minimal impact. Mainly affects local consumption in Singapore. Especially for S-REITs with overseas exposure, they will not be impacted.
9:05 Which S-REITs can tide us through a potential recession in 2023?
3 Criteria for me:
Track Record of increasing NAV/Unit and DPU growth
Low Gearing Ratio and healthy ICR
Has a well-diversified portfolio
10:24 What should we watch out for? Any sectors to avoid?
No sectors to avoid, individual REITs’ performance is much more important
Poor performing REITs (especially even in good economic conditions) may perform even worse
High Gearing Ratio and low ICR can cause debt refinancing issues for REITs
11:54 China has announced the easing of COVID-zero measures. What effect will this have on S-REITs?
Expect ‘revenge travelling and spending’ of Chinese Tourists
Mainland China occupied No.1 spot in Tourism Receipts in Singapore in 2019
54% of their budget goes to shopping and 15% in accommodation
Benefits the Retail and Hospitality Sector
13:26 To what extent will China’s reopening offset the global slowdown and on Singapore’s economy?
14:37 What should we be aware of when adding S-REITs with China exposure to their portfolios?
China has gone through debt crises in the past 2 years, giving REITs headwinds when refinancing due to increased difficulty in acquiring favorable loans
Healthy Balance Sheets are very important
15:57 Will 2023 be the year of recovery for S-REITs?
Yes, Interest Rates should be peaking in the next year.
However, 2 Risks:
Further increases in Interest Rates (maybe above 6-7% and beyond) may cause another S-REIT market crash due to reasons
S-REITs may perform badly if there were to be a severe recession
17:00 What is your approach when investing in S-REITs and any tips?
No one can predict the market and the macro-environment. Don’t worry about what we cannot control.
Focus on your own Financial Objectives.
Accumulate in stages
Ensure a Diversified Portfolio!
17:58 Outro
Note: The above analysis are my own personal views and are NOT buy or sell recommendations. Investors who would like to leverage my extensive research and years of Singapore REIT investing experience can approach me separately for a REIT Portfolio Consultation.
Listen to his previous market outlook interviews here:
Kenny Loh is an Associate Wealth Advisory Director and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Symposium and Invest Fair.
It’s the festive season again! Wishing everyone a very Merry Christmas and a Happy New Year. I have a short 13-minute-long video interview with Phillip Capital, touching on the current REIT market and what can investors do to take advantage of it. Why is it currently a great time to go REITs shopping? You can view the video ‘Teatime Tuesday: Get A Slice Of Property Action With REITs’ in at the bottom of this article.
Technical Analysis of FTSE ST REIT Index (FSTAS351020)
FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) decreased from 737.39 to 723.18(-1.91%)compared to last month’s update. The REIT Index is rebounding and trading in an upward parallel channel. The 20D SMA has just crossing up the 50D SMA indicate a short-term bullish up trend.
Short-term direction: Up (Parallel Channel, 20D SMA is sloping up)
Medium-term direction: Down (50D SMA is sloping down)
Long-term direction Down (200D SMA is sloping down)
Immediate Support at 720 (Parallel Channel, 20D SMA)
The following is the compilation of 38 Singapore REITs with colour-coding of the Distribution Yield, Gearing Ratio and Price to NAV Ratio.
The Financial Ratios are based on past data and there are lagging indicators.
This REIT table takes into account the dividend cuts due to the COVID-19 outbreak. Yield is calculated trailing twelve months (ttm), therefore REITs with delayed payouts might have lower displayed yields, thus yield displayed might be lower for more affected REITs.
All REITs highlighted are now updated with the latestQ3 2022business updates/earnings.
Ascott Residence Trust has been renamed to Capitaland Ascott Trust. Ascendas REIT has been renamed to Capitaland Ascendas REIT.
FY DPU: If Green, FY DPU for the recent 4 Quarters is higher than that of the preceding 4 Quarters.If Lower, it isRed.
Yield (ttm): Yield, calculated by DPU (trailing twelve months) and Current Price as of December 2nd 2022.
Digital Core REIT and Daiwa House Logistics Trust: Yield calculated from trailing six months distribution, TTM yield is annualised.
Gearing (%): Leverage Ratio.
Price/NAV: Price to Book Value. Formula: Current Price over Net Asset Value per Unit.
Yield Spread (%): REIT yield (ttm) reference to Gov Bond Yields. REITs trading in USD is referenced to US Gov Bond Yield, everything else is referenced to SG Gov Bond Yield.
Price/NAV Ratios Overview
Price/NAV decreased slightly to 0.80.
Decreased from 0.81 from November 2022.
There has been a recent sell-off in September-October period.
Singapore Overall REIT sector is undervalued now.
Take note that NAV is adjusted upwards for some REITs due to pandemic recovery.
Most overvalued REITs (based on Price/NAV)
Parkway Life REIT (Price/NAV = 1.61)
Keppel DC REIT (Price/NAV = 1.33)
Capitaland Ascendas REIT (Price/NAV = 1.15)
Mapletree Industrial Trust (Price/NAV = 1.14)
Mapletree Logistics Trust (Price/NAV = 1.10)
SPH REIT (Price/NAV = 0.98)
Only 5 REITs are overvalued now based on Price/NAV value.
No change in the Top 2 compared to last month.
Most undervalued REITs (based on Price/NAV)
Lippo Malls Indonesia Retail Trust (Price/NAV=0.34)
ARA Hospitality Trust (Price/NAV = 0.53)
Manulife US REIT (Price/NAV = 0.54)
Prime US REIT (Price/NAV = 0.55)
EC World REIT (Price/NAV = 0.56)
BHG Retail REIT (Price/NAV = 0.57)
No change in the Top 3 compared to last month.
Distribution Yields Overview
TTM Distribution Yield increased to 7.67%.
Increased from 7.58% in November 2022.
18 of 40 Singapore REITs have distribution yields of above 7%. (same as last 2 months’ update)
Do take note that these yield numbers are based on current prices taking into account the delayed distribution/dividend cuts due to COVID-19, and economic recovery. The recent sell-off contributed to the increase in average yield.
9 REITs have a ttm yield of over 10%!
Highest Distribution Yield REITs (ttm)
Prime US REIT (14.67%)
Manulife US REIT (13.97%)
EC World REIT (12.60%)
United Hampshire US REIT (12.16%)
Lippo Malls Indonesia Retail Trust (12.00%)
Keppel Pacific Oak US REIT (11.38%)
Reminder that these yield numbers are based on current prices taking into account delayed distribution/dividend cuts due to COVID-19.
Some REITs opted for semi-annual reporting and thus no quarterly DPU was announced.
A High Yield should not be the sole ratio to look for when choosing a REIT to invest in.
Yield Spread widened to 4.61%.
Widened from 4.17% in November 2022.
Gearing Ratios Overview
Gearing Ratio remained at 37.03%.
Remained at 37.03% in November 2022.
Gearing Ratios are updated quarterly. Therefore, no REITs have updated their gearing ratios in the past month.
Highest Gearing Ratio REITs
Lippo Malls Indonesia Retail Trust (43.7%)
ARA Hospitality Trust (43.3%)
Suntec REIT (43.1%)
Manulife US REIT (42.5%)
United Hampshire US REIT (42.1%)
Elite Commercial REIT (41.9%)
Market Capitalisation Overview
Total Singapore REIT Market Capitalisation decreased by 1.16% to S$95.11 Billion.
Decreased from S$96.23 Billion in November 2022.
Biggest Market Capitalisation REITs:
Capitaland Integrated Commercial Trust ($13.39B)
Capitaland Ascendas REIT ($11.55B)
Mapletree Pan Asia Commercial Trust ($8.64B)
Mapletree Logistics Trust ($7.68B)
Mapletree Industrial Trust ($5.95B)
Frasers Logistics & Commercial Trust ($4.18B)
No change in the rankings since September 2022.
Smallest Market Capitalisation REITs:
Lippo Malls Indonesia Retail Trust ($231M)
BHG Retail REIT ($257M)
ARA Hospitality Trust ($289M)
EC World REIT ($364M)
United Hampshire US REIT ($371M)
Elite Commercial REIT ($394M)
No change in the rankings from last month’s update.
Disclaimer: The above table is best used for “screening and shortlisting only”. It is NOT for investing (Buy / Sell) decision. If you want to know more about investing in REITs, here’s a subsidised 2-day course with all you need to know about REITs and how to start investing in them.
Top 20 Best Performers of the Month in November 2022
There are no major REIT happenings for the month of November 2022.
Summary
Fundamentally, the whole Singapore REITs landscape is very undervalued based on the average Price/NAV (at 0.80) value of the S-REITs, which is quite rare that S-REIT is trading at such huge discount with a very attractive DPU yield of 7.67%! This is even higher than that of last month. Below is the market cap heat map for the past 1 month. The performance of REITs are evenly split. 18 REITs have been bullish while 15 REITs have been bearish the last 30 days. There is no clear correlation with market cap in terms of performance.
Yield spread (in reference to the 10-year Singapore government bond yield of 3.00% as of 3rd December 2022) widened from 4.17% to 4.61%.This is a huge increase of 0.44%. This is due to the large decrease in Government Bond Yields (about 0.40%), while the S-REIT Average Yield increased from7.58% to 7.67%. This resulted in the widening of the yield spread.
Technically, FTSE ST REIT Index is trading in a bearish territory but rebounded strongly from the support level. Based on the past chart patterns, REIT Index used to have a strong V-shaped rebound when there was a huge sell off with a very attractive valuation & DPU yield. Is this a bull trap or dead cat bounce? Is this the time to do bottom fishing to lock in the current attractive valuation and yield? Or is it better to wait for a very clear bull signal first before investing in Singapore REITs? No one will know the exact answer but more importantly investors should focus on their own financial objective, time horizon and risk appetite.
Interview with Phillip Capital: Get A Slice of Property Action with REITs
Recently I had an interview with PYTCH Media by Phillip Capital. You can view the video below. Questions that I answered include:
About Kenny Loh (0:50)
Short to mid-term outlook for global markets (1:11)
Current Investment Sentiments (1:54)
What is the best time to invest? Why invest during the bear market (3:15)
What sectors/asset classes should I invest in? (3:43) REITs’ valuation per unit has reached lower than during the 2020 COVID Crash.
Why REITs are very attractive now & market outlook (4:40)
What is a REIT? (6:48)
Pros and Cons of investing in REITs. Are REITs the right investment instrument for you? (7:55)
What are Thematic Portfolios? (Portfolio Themes) (9:17)
Technology Disruption
China’s Economic Growth
Decarbonisation
Advice on weathering the current grim investment outlook (11:36)
Note: This above analysis is for my own personal research and it is NOT a buy or sell recommendation. Investors who would like to leverage my extensive research and years of Singapore REIT investing experience can approach me separately for a REIT Portfolio Consultation.
Kenny Loh is an Associate Wealth Advisory Director and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Symposium and Invest Fair. You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement
