1QCY14 results in line for all S-REITs under our coverage.

The US Fed made another USD10b cut to its monthly bond-buying stimulus operations, as expected.

Reiterate UNDERWEIGHT as sector fundamentals are far from exciting, apart from the ‘sell in May and go away’ effect.

What’s On Last Week

It was a mixed week for REITs across the region ahead of the Federal Open Market Committee meeting on 29-30 April. As expected, the US Federal Reserve scaled back its QE programme to USD45b, its fourth straight USD10b cut since last Dec 2013, and said more reductions are likely in “measured steps”. On the S-REITs front, the defensive healthcare REITs remained in favour for a second week while the hospitality, industrial and retail REITs turned laggards.

What’s Our View

The S-REITs sector is still down 13.6% YoY and 13.9% since 22 May last year. However, we notice a bottoming-out of sorts since end-March, primarily due to two ladies – Janet (the Dove Yellen) and TINA (There Is No Alternative). There may be a chance of a 1987 melt-up (usually preceding a melt-down), as money is switched from bonds into equities. At this juncture, we refrain from upgrading our sector call as (1) fundamentals have not really improved with YoY forward DPU growth still at modest levels of 3-4%, and (2) the jury is still out on the “sell in May and go away” effect, which has been evident in Asia for the past four years since the GFC (Figure 1). Our economist forecasts Fed funds rate to be raised only after Jun 2015, with SG10Yr yields hitting 2.48% in 2014 and 3.45% in 2015. Should the “risk-on” mode persist for risky assets during May-July, we may revisit our sector call, with an upwards bias, after the 1H14 results.

Source: Maybank Kim Eng Research - 6 May 2014