How to Invest and Trade Property Stocks with Bearish Signs?

Singapore Skyline Erwin Soo

01 Sep How to Invest and Trade Property Stocks with Bearish Signs?

Singapore REITs had a fantastic run in the past 2 years, probably from the spill over effect from the hot property market. With many cooling measures implemented by the Singapore Government, we have yet to see heavy correction on the property prices. However, many property-related stocks have came down in price, making new 1-year lows. This is a very weak sign for property stocks, or even the property market itself. It might be the tapering of US bond buying and the threat of rising interest rate. Whatever it is, there has been strong selling of property stocks in the past 6 months.

REITs and Property Trusts

These are the REITs which had made new 9-mth or 1-year lows just last week:

  • Ascendas Hospitality Trust: -32%; $1.06 (15 Mar 13) to $0.72 (28 Aug 13)
  • Ascendas Industrial: -31%; $0.86 (25 Apr 13) to $0.59 (28 Aug 13)
  • Ascott REIT:  -22%; $1.505 (21 May 13)  to $1.18 (29 Aug 13)
  • Cambridge:  -22%; $0.82 (22 Apr 13) to $0.64 (28 Aug 13)
  • CapitaComm: -25%; $1.745 (3 May 13) to $1.315 (29 Aug 13)
  • CapitaMall: -26%; $2.45 (29 Apr 13) to $1.815 (30 Aug 13)
  • CDL HTrust: -28%; $2.13 (15 Mar 13) to $1.54 (28 Aug 13)
  • Far East H Trust: -32%; $1.22 (15 Mar 13) to $0.83 (28 Aug 13)
  • Frasers CT: -26%; $2.34 (3 May 13) to $1.735 (28 Aug 13)
  • Lippo Malls: -33%; $0.58 (9 May 13) to $0.39 (28 Aug 13)
  • MapleTree Industrial: -21%; $1.61 (14 May 13) to $1.27 (30 May 13)
  • MapleTree Comm: -28%; $1.54 (15 May 13) to $1.105 (28 Aug 13)
  • Sabana REIT: -21%; $1.385 (22 Apr 13) to $1.09 (28 AUg 13)

Property Developers

These are property developers which made new 9-mth or 1-year lows last week:

  • CapitaLand: -28%; $4.03 (28 Jan 13) to $2.92 (28 Aug 13)
  • Tuan Sing: -19%; $0.39 (13 Feb 13) to $0.315 (29 Aug 13)
  • UE: -33%; $2.52 (20 Dec 12) to $1.685 (30 Aug 13)
  • Wheelock: -13%; $1.935 (14 Jan 13) to $1.685 (30 Aug 13)
  • Yanlord: -31%; $1.68 (24 Jan 13) to $1.165 (30 Aug 13)

Should you buy?

For long term investors, property stocks are not exactly cheap even though prices had corrected 20-30%. I have tabulated the REITs and found that the average dividend yields are less than 8% while the Price to Book ratios are close to 1 (see table below). Hence, there isn’t significant discount and long term investors can afford to wait further. Any short term rebound is still dubious at this point in time. It can be a dead cat bounce.

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REITs - 30 Aug 13

For trend traders, this is definitely a downtrend trade and you would look to short. The 50-day moving average had went under the 200-day moving average (death cross). A trend trader is likely to initiate a short position when the price pulls back close to the 50-day moving average, and an oscillator to show that it is overbought at the same time (see chart below, click to enlarge). I am using the FTSE ST Real Estate Index as a reflection of the strength of property stocks. You cannot trade this because it is not a counter. You have to look for individual property stocks.

FTSE ST Real Estate - Trend

For short term counter-trend traders, there are opportunities for a rebound trade. One way is to look for divergence between price and an oscillating indicator and combine the signal with trendlines (see chart below, click to enlarge). Place a long trade close to the bottom of the trendline and place a stop below the trendline to take you out of the trade if price goes down further.

FTSE ST Real Estate - Countertrend

As you can see, it is not as simple as to buy or sell without knowing what your investment period is. One scenario but many different possible actions to take. If you enter like a long term investor and exit like a trader, or vice versa, chances are you will not make money.

Should you sell?

What if you have already invested in these stocks? Do you sell or not? It depends.

If you are a long term investor and have bought these stocks at lower prices, why do you have to worry about this decline? Ride through it and go for the long term returns if the reasons which you bought these stocks are still valid.

If you have got in at the high, I will get out if I were you. It was likely a case where you have bought these stocks because most people had made money in REITs, and you did not want to miss out anymore. It is not likely you have bought it because these were valued buys. Value investors wouldn’t have bought at those valuations.

Trend traders might already have short positions and can continue to trail the stops as price moves lower.

Countertrend traders might have got in after the divergence signal and waiting for price to hit the profit target.

Conclusion

I am using this example to illustrate the different perspectives of investors and traders. If you do not know what you are doing, you might be listening to the wrong advice. Buying like an investor but selling like a trader is screwing your returns. Buying like a trader and selling like an investor will guarantee you large paper losses. Decide if you are an investor or trader! Know what you are doing and stick to your plan!



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