Real estate seen as “safe haven” amid trade war uncertainty

REITs rose as other stocks fell during trade talks breakdown

US President Donald Trump and Chinese President Xi Jinping (Credit: Getty Images and iStock)
US President Donald Trump and Chinese President Xi Jinping (Credit: Getty Images and iStock)

While the stock market at large took a beating amid last week’s escalation of the U.S.-China trade war, one sector continued to show strong growth: real estate.

By offering investors more exposure to domestically-oriented businesses, real estate investment trusts have largely established themselves as a safe haven from global supply-chain disruptions, the Wall Street Journal reported.

“Our conclusion is that for U.S. REITs, it is mostly a nonevent,” Amanda Black, managing director of investment-management firm Jaguar Listed Property told the Journal.

In trading on May 10 and 13 — the day President Trump announced new tariffs on Chinese goods, and the following Monday — REIT shares rose by 0.9 percent while the S&P 500 fell 2.1 percent. Manufacturing companies took a bigger hit, with Caterpillar and Boeing each falling by about 4.5 percent.

The safe-haven status of REITs varies by sector, with residential and health-care considered the most defensive since their strength is tied more to demographic growth than the economy.

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On the other hand, hotel and retail REITs are likely to suffer more from an economic slowdown. Data-center REITs like Equinix, which has properties in 24 countries, potentially have more exposure to geopolitical turmoil but have yet to see a major impact.

The most directly-impacted sector may be construction, though the reaction there has also been mixed so far, as The Real Deal detailed last week.

Real-estate stocks are more vulnerable to another type of economic uncertainty, however. Given the industry’s dependence on debt financing, rising interest rates can have a significant impact on stock prices. The Federal Reserve has so far indicated that it not planning further interest rate hikes. [WSJ] — Kevin Sun