KUALA LUMPUR: The start of the US Federal Reserve's rate cuts in September is expected to provide a positive boost to Malaysia's real estate investment trusts (REITs) sector, according to RHB Research.
The research house thinks this could serve as a significant catalyst to reignite investor interest in Malaysian REITs.
"The sector may become more vibrant with more REIT listings and new asset acquisitions," it said in a note.
While RHB Research expects Bank Negara Malaysia (BNM) to keep the overnight policy rate (OPR) at 3 per cent, it thinks Malaysia's REITs would still benefit from the expected interest rate cuts globally.
Due to the narrowing rate differential between Malaysia and other countries, it said this would drive capital into Malaysian bonds, exerting downward pressure into Malaysia bond yields.
Meanwhile, RHB Research said the proposed injection of about RM2.4 billion of assets into a newly formed REIT for its upcoming listing is also a positive for the sector.
The firm thinks the trend should continue as more companies with a pool of investment properties consider monetising their assets in a lower interest rate environment.
"We upgrade the REIT sector to Overweight from Neutral. Overall, with limited downside risks for REITs under our coverage , we prefer those with inorganic growth prospects to drive Distribution Per Unit (DPU) growth with our top picks being Sunway REIT and Axis Real Estate Investment Trust. "We believe both REITs will likely see a better growth outlook. Both REITs are likely to own data centre assets in the future," it added. Ends