NikkoAM ETFs product update

1. Nikko AM Singapore STI ETF

2.  Nikko AM-StraitsTrading Asia ex Japan REIT ETF 

Asian REITs had a mixed month

Asian stocks tracked gains in Wall Street during December, despite the US Federal Reserve saying that it would end its bond-buying programme in March and signalling three interest rate hikes in 2022 to tackle persistent inflation. However, easing worries about the impact of the COVID-19 Omicron-variant did support market sentiment. Overall, regional REITs had a mixed month, with the FTSE EPRA Nareit Asia ex Japan REITs 10% Capped Index returning 0.81% in SGD terms for the month. The FTSE ST Real Estate Investment Trusts Index gained 1.63% in SGD terms, while the Hang Seng REIT Index Total Return fell 0.67% in Hong Kong dollar (HKD) terms. In comparison, general equities in Asia returned 1.27% in US dollar (USD) terms in December, according to the MSCI AC Asia-ex-Japan index. The US 10-year treasury yields expanded while the Singapore 10-year government bond yield compressed over the month.

At the sector level, specialised and healthcare REITs were the best performers in December, while retail and office REITs were the worst performers. At the individual REIT level, Mapletree North Asia Commercial Trust, First REIT and Keppel DC REIT were the best performers in December. Conversely, Embassy Office Parks REIT, Sunlight REIT and Manulife US REIT were the worst performers for the month.

Mapletree North Asia Commercial Trust to merge with Mapletree Commercial Trust

Mapletree North Asia Commercial Trust (MNACT), a Singapore-listed North Asia-focused REIT, is set to be absorbed by Mapletree Commercial Trust (MCT) via a proposed merger announced on 31 December. The combined entity, to be named Mapletree Pan Asia Commercial Trust, will constitute 18 commercial assets across Singapore, China, Hong Kong, Japan and South Korea, with assets under management of approximately SGD 17.1 billion. Mapletree’s new flagship commercial REIT is also expected to have a market capitalisation of around SGD 10.5 billion, making it one of Asia’s largest REITs. To be completed via a trust scheme, the merger will see shareholders in MNACT receive a scheme consideration of SGD 1.1949 for each unit held. MNACT owners can opt to receive either 0.5963 new MCT units at an issue price of SGD 2.0039 apiece, or a combination of 0.5009 consideration units and SGD 0.1912 in cash. Mapletree North Asia Commercial Trust was one of the best performing Asian REITs in December.

Manulife US REIT completed acquisition of three US office properties

Manulife US REIT—Asia’s first pure-play US office REIT—has officially completed its proposed acquisition of three office park assets in Phoenix and Portland in the United States, which was first announced at end-November. The three properties (Tanasbourne Commerce Centre, Park Place and Diablo Technology Park) were purchased for a combined USD 201.6 million and will boost the REIT’s exposure to high-growth markets and tenants, especially in the technology and healthcare sectors. Manulife US REIT’s portfolio occupancy has now increased to 91.3% while the weighted average lease expiry across the enlarged portfolio went up to 5.2 years. Manulife US REIT will fund its proposed acquisition through a combination of loans and proceeds from a private placement, which closed at USD 0.649 per unit. Manulife US REIT was one of the worst performing Asian REITs in December.

3. ABF Singapore Bond Index Fund

SGS outperformed USTs in December, with 10-year SGS yields down 5 bps to 1.64%. Long-dated SGS yields rose towards month-end, with the 30-year SGS yield ending December 17 bps higher at 2.09%, ahead of a busy SGS issuance schedule in 1Q2022, concentrating on mid-dated SGS securities. The outperformance of SGS has been supported by: (1) a reduction in SGS Market Development (MD) bond duration supply in 2022, especially in the first half, when no long end (>10 years) SGS MD auction is scheduled; (2) the Monetary Authority of Singapore’s (MAS) plan to issue a new long end SGS (Infrastructure) bond around mid-2022 based on market conditions via debt syndication, which is likely to match demand from structural investors; and (3) as the MAS allowed the SGD to appreciate by slightly raising the SGD nominal effective exchange rate (NEER) slope in October 2021, with expectations of further foreign exchange policy tightening in 2022. Government bonds underperformed sub-sovereign securities, with the Markit iBoxx ABF Singapore Govt Total Return (TR) Index returning at -0.22%, compared to -0.01% monthly returns for the Markit iBoxx ABF Singapore Sub-Sovereigns TR Index.

Property curbs introduced to help cool the housing market

Singapore introduced residential property curbs for the first time since 2018 to cool a surge in home prices over the past year. This did not come as a surprise, as the MAS had highlighted elevated leverage risks as rates rise in its 2021 Financial Stability Review. Tighter measures include higher additional stamp duties (Additional Buyer's Stamp Duty) for second and subsequent properties, as well as lowering of the total debt servicing ratio (TDSR) from 60% to 55%. The government also intends to release additional land supply, which should alleviate the tight market with less than one year worth of supply for the mass market segment.