The S-REITs sector has seen some positive momentum following the FOMC meeting from 14-15 Mar, with the FTSE ST REIT Index (FSTREI) appreciating 2.7% since, versus the STI’s 1.1% increase. We believe this was driven by the relatively dovish tone of the Fed’s statement, coupled with unchanged expectations for three rate hikes this year as compared to Dec’s FOMC meeting, based on the dot plot diagram. However, we believe there continues to be uncertainties on the policy front.

The Trump administration’s failure to repeal the Obamacare leaves question marks on whether there will also be obstacles faced in its tax cut plans, especially since details are still lacking at this juncture. Moreover, there are also differing views on monetary policy by Fed officials.

For example, Federal Reserve Vice Chairman Stanley Fischer said in an interview to CNBC that he sees two more rate hikes this year, but Boston Federal Reserve President Eric Rosengren highlighted that four rate increases in 2017 was deemed appropriate.

Ultimately, how events unfold would depend heavily on economic data points ahead and details on the U.S. fiscal policies.

With the yield spread of the FSTREI against the Singapore Government 10-year bond yield trading slightly below the 5-year mean, we maintain NEUTRAL on the S-REITs sector.

We recommend investors to be selective, and highlight Keppel DC REIT [BUY; FV: S$1.39], Frasers Centrepoint Trust [BUY; FV: S$2.28] and Frasers Logistics & Industrial Trust [BUY; FV: S$1.08] as our preferred picks.

Source: OCBC Research - 31 Mar 2017