After a mini-rally that pushed regional indexes to recent highs last week, uncertainty will return in the days ahead as investors brace themselves for a slew of economic data. China will announce today its third-quarter growth numbers, which might reveal the severity of its slowdown. Few market watchers expect an upside surprise.
Bank of America Merrill Lynch economist Chua Hak Bin said in a note last Friday: "China's gross domestic product probably declined to 6.7 per cent year on year in the third quarter from 7 per cent in the second quarter, pointing to bigger downward pressures on the real economy.
"We worry about the next phase: the leverage channel where the financial difficulties faced by commodity-related or leveraged China companies could set off a contagion which could hurt the rest of Asia via bank exposures."
Other regional data to watch this week includes China's retail sales, Taiwan's exports and South Korea's third-quarter growth. As a whole, they will provide the latest view on how Asia's manufacturing and export economies are faring.
If the figures are soft, they might spook the local market, which has been recovering since the start of October. Singapore's benchmark Straits Times Index (STI) has gained 8.5 per cent since Oct 1 to 3,030.61 at last close, retaking the 3,000 level that was lost in mid-August. Remisiers, however, were unconvinced by the recent rally and expect the STI to remain, at best, range-bound as firms enter their third-quarter earnings reporting season.
Amid the uncertainty, even highly defensive plays such as real estate investment trusts (Reits) are showing signs of stress.
A challenging business environment and weak sentiments among retailers are putting pressure on rentals, Maybank Kim Eng analysts said in a recent note that cautioned clients about a worst-case scenario of up to 6 per cent annual decline in retail rentals in 2015 and 2016.
If this scenario pans out, CapitaLand Mall Trust and Mapletree Commercial Trust will be the most vulnerable, with both suffering an average annual distribution per unit (DPU) cut of 1.7 to 1.9 per cent, Maybank Kim Eng said.
CapitaLand Mall Trust is set to report its third-quarter results on Thursday. The Reit has put on 5.8 per cent since the start of October, and may be a target for profit-taking in the week ahead.
Still, options are aplenty in the Reit segment beyond the pure retail plays. Healthcare-focused First Reit last week reported a 3 per cent year-on-year rise in DPU for the July to September period, due partly to increased contribution from assets in Indonesia.
PhillipCapital analyst Tan Dehong maintained his "buy" call on the Reit, saying: "Demand for healthcare services is still expected to remain unfettered as Indonesia continues to roll out its universal healthcare programme to gradually cover all citizens and residents by 2019. First Reit is expected to benefit from this improvement in healthcare demand."
Sentiments around Keppel DC Reit are also positive, as the data centre Reit last Thursday reported a better-than-expected net distributable income of $14.5 million, which was 2.2 per cent higher than its initial public offer forecast.
"Keppel DC Reit offers investors unique exposure into the highly specialised and resilient data centre market. The trust is poised to ride on rising global usage of data and demand for data centres. Earnings are further supported by its master leased properties which have average annual escalations of 2 to 4 per cent," DBS Group Research analyst Rachael Tan said.