Further Market Correction Expected This Week Due To Chaos From Escalation of Israel and Hamas War.

Israel has commenced expanded ground operations against Hamas with battle tanks and ground troops storming into Gaza. I foresee further blood bath in the stock markets this week as we have seen in preliminary market reaction during the on-start of previous wars. This week may pose another buying opportunity into SREITs which has been hammered down close to the COVID-19 low.

Quick Highlights:

1. Inflation may come back in the form of higher oil prices which trickled down into higher energy prices for all businesses

There is a current group think that interest rate is at its peak already and that the US Federal Reserve will not increase rates anymore. Current rates of  between 5.25%-5.50% is actually small relative to the interest rates once imposed in 1980s to combat the Great Inflation dark period- the effective Fed funds rate once reached 19.39% in April 1980. 

Moral of the story is not to be too over-confident that inflation is already brought under control. More rate hikes may come until the global economies tanked into recession for the hot demand to finally cool off and to disrupt the inflationary beast

2. "Stable" SREITs mostly in trouble too

The traditional "stable" government linked REITs such as The Mapletree family of REITs are currently running a very high gearing ratio that are already at or near the 40% mark. For example, Mapletree Logistics Trust, Mapletree Pan Asia Commercial Trust and Maple Tree Industrial Trust have gearing ratio of 39.5%, 40.7% and 38.2% respectively. Valuation may go further downwards given the higher interest rates impact and rights issue maybe on the way to avoid breach of banking covenants if the current economic climate worsen. 

Parting thoughts

Personally, I think that no time is a good time to invest these days. Hence despite the gloomy economic outlook, I will most likely be mopping up additional units in Capitaland Ascendas REIT, Keppel DC REIT or United Hampshire US REIT over this 2 weeks. Frasers Logistics and Commercial Trust also looks interesting since it has very low leverage ratio (less than 30%) but I have already added 23,000 units last week and will wait for its September year end results release on 2 November 2023 before deciding on further action.