Again, a quick recap of last week’s points:
- No surprises in terms of price movements – driven by general market
- Inverse relationship between the property/REIT/risk-free rate
- No company announcements or news that affected stock price significantly
- US – China trade talks pivotal for global equity markets
In terms of stock prices:
- GMG finished the week up 0.5%
- GPT finished the week down 1.6%
- ASX200 down 3.0%
- The US-10 treasury yields slid to 1.53%
Similar to last week, the companies did not have any announcements that may have moved the share price. The price movements seen reflect the general market conditions and as aforementioned, the movement of risk-free related assets.
As a recap of both businesses, GMG has, in my opinion, has a more value added property portfolio that can cater to clients within e-commerce and data centres. This attracts a higher occupancy rate and perhaps higher rental yields. GPT posses generic office and shopping centre space – it is no different to other REITs such as Scentre Group (ASX: SCG and owner of Westfield shopping centres) and Vicinity Centres (ASX: VCX and owner of Chadstone shopping centre).
The RBA has cut interest rates by 25 basis points to 0.75%. This will have a positive effect on equity markets and on these REIT shares. I believe once the market shakes off the negative economic news that has come out of US (poor manufacturing figures) and Trump’s protectionism/tariff fetish – the general market should continue to grind higher. Furthermore, the fourth quarter of the year is generally a stronger quarter for shares (although mentioning this has probably jinxed it).
US-10 year treasury yields have tumbled hard in the past two weeks – while this is a positive for “bond proxy” stocks, there is a point where sliding yields becomes an economic issue and recession scare (as the yield curve inverts), rather than a positive for our REIT shares. However, I believe both the general market and REITs will have a decent green week next week.
In terms of portfolio weighting, I would personally have a composition that involves (50% long A2, 75% long GMG and 25% short AMP) or something along the lines of capitalizing on the shares that will move with the market, while having some small short exposure in case things go sour.
A long position on REITs should be optimal as the market rebounds next week. Again, the rationale/reason is consistent with previous weeks – including US-10 year treasury yields going lower, RBA interest rate cut is good for stocks/economy and general economic conditions are stable, while the primary risk is the trade war.