Global Public Equity – Quarterly Review


The primary theme of the third quarter was deteriorating economic growth around the globe, prompting central banks to introduce fresh stimulus to stave off recession

This caused interest rates to fall which was generally supportive of property stocks given that credit markets remain robust and are not acting as if there is an imminent recession.

In Asia-Pacific, Hong Kong is seeing weak sentiment as social unrest continues despite the government trying to strike a less combative tone and offering some concessions. The protests are starting to have a noticeable impact on the local economy with retail sales and inbound tourism seeing significant declines. Further, a lack of progress and conflicting messages regarding the US-China trade war are adding to the negative sentiment. In Australia, the Reserve Bank of Australia (RBA) cut its cash target rate another 25 basis points to 0.75% given both subdued inflation and an uncertain outlook for inflation. This move is also supportive of real estate in general. Elsewhere, we saw more capital raising activity in the region, primarily among S-REITs and J-REITs.

In Europe, the 10-year German bund yield reached a record low at – 0.71% as the European Central Bank (ECB) proposed more stimulus due to weak economic data and low inflation. This helped drive positive performance in defensive sectors, which includes property stocks. Continental Europe has been negatively impacted by the decline in the global manufacturing sector, partly as a result of the US-China trade war dampening manufacturing activity globally. Economic data in the United Kingdom continues to be weaker than Europe but is acting resilient in the face of Brexit uncertainties. Despite these negatives, the overall region is seeing strong capital markets activity with mergers and acquisitions (M&A) activity and pending initial public offerings (IPOs) likely to happen before year end.

We continue to see ample debt and equity capital for real estate assets

In North America, the lagged effects of US interest rate increases by the Federal Reserve (Fed) began to slow the economy as shown by leading indicators such as purchasing managers indices (PMIs). This caused the Fed to make two consecutive quarter-point cuts to bring the upper bound of the Federal Funds Target Rate to 2.00% with the market implying almost two more cuts of the same magnitude before the end of the year. As it was elsewhere around the globe, this was positive for REITs and led to further capital raising. Once unheard of in the REIT space, issuance of 30-year unsecured debt is becoming more common at ultra-low interest rates. Further, employment growth continues to be positive with unemployment claims at all-time lows, providing continued demand for real estate. And in Canada, strong employment growth has allowed the Bank of Canada to maintain interest rates while the rest of the world cuts rates.

The upside to the decline in interest rates globally has been a significant uptick in equity and debt issuance by REITs. This will give many companies more dry powder to acquire and grow earnings. We continue to see ample debt and equity capital for real estate assets which, along with lower interest rates, should support property values and the property market cycle going forward.



Given the late cycle nature of the current times, low interest rates, and central banks that are working to keep rates low, we believe property stocks are set to benefit given their higher dividend yields and stable cash flows. Further, with generally positive employment growth driving demand and robust capital markets, we also believe this will provide a good backdrop for stock picking for our seasoned investment team.


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