CIO of major Asian bank picks a 'great income-generating asset' that offers 5% yield

Published Sun, Oct 4 20208:41 PM EDTUpdated Sun, Oct 4 20208:51 PM EDT

Key Points

Hou Wey Fook, chief investment officer of DBS Bank, said Singaporeans' "affinity to linger in malls" will help to support rental yields, which is good news for retail real estate investment trusts.
Yields on shopping mall REITs are around 5%, which makes the segment a "great income-generating asset," he said.
The CIO recommends Singapore REITs as part of the income-generating portion of a "barbell" investment portfolio.

SINGAPORE — Retail real estate investment trusts in Singapore are a "great income-generating asset" that offers yields of around 5%, according to the chief investment officer of Southeast Asia's largest bank. Singapore is one of the largest Asian markets for REITs , which are publicly traded companies that own, operate or finance properties that generate income. REITs are typically favored by investors seeking steady dividend payouts. "Singapore REITs I think (are) a beautiful sector to be in," Hou Wey Fook, CIO of DBS Bank, told CNBC's "Street Signs Asia" on Friday. He explained that data center REITs will continue to do well because the coronavirus pandemic has accelerated the adoption of digital technology, while retail REITs will benefit from Singaporeans' "affinity to linger in malls." Shares of Singapore-listed retail REITs have suffered as social-distancing measures to slow the spread of the coronavirus hit foot traffic and sales at shopping malls. As of Friday's close, CapitaLand Mall Trust has fallen by around 22% this year, while Frasers Centrepoint Trust has been down roughly 14%, data by Refinitiv showed. The benchmark FTSE Straits Times Index has dropped by around 23% lower so far this year, according to Refinitiv. But "unlike in the U.S., the ... size of houses or apartments in Singapore is actually very small and the affinity to linger in malls will continue for lifestyle, for recreation, food and beverage," said Hou. "So we think the rental yields in the retail malls will hold up, and therefore at 5% it's a great income-generating asset," he added. Prediction for gold The CIO recommends Singapore REITs as well as BB and BBB-rated corporate bonds for the income-generating portion of a "barbell" investment portfolio. A barbell concept is typically an investment strategy that seeks to balance risk and reward by investing in two extremes of high risk and no-risk assets, and avoiding middle-of-the-road choices. On the other "end" of the portfolio, Hou said he recommends a play on secular growth trends by investing in sectors such as technology. Gold as a risk diversifier has proven itself to be an effective hedge, outperforming most currencies including the dollar, in the past 10 years. CIO of DBS Bank Hou Wey Fook In addition, gold can add diversity and resilience to the overall investment portfolio, he said. In a report outlining his investment views for the fourth quarter, Hou predicted that gold could hit $2,300 an ounce in roughly a year's time. Spot gold traded at around $1,907.80 on Friday evening Asia time. "Gold as a risk diversifier has proven itself to be an effective hedge, outperforming most currencies including the dollar, in the past 10 years," Hou said in the report. "Fears of a potential return of inflation is another reason to consider safe havens, such as gold, which have performed well in an inflationary environment."

The logo of DBS, Singapore's largest bank.

Roslan Rahman | AFP | Getty Images

Singapore is one of the largest Asian markets for REITs, which are publicly traded companies that own, operate or finance properties that generate income. REITs are typically favored by investors seeking steady dividend payouts.

"Singapore REITs I think (are) a beautiful sector to be in," Hou Wey Fook, CIO of DBS Bank, told CNBC's "Street Signs Asia" on Friday.

He explained that data center REITs will continue to do well because the coronavirus pandemic has accelerated the adoption of digital technology, while retail REITs will benefit from Singaporeans' "affinity to linger in malls."