As the financial market around the QDII funds reveals a series of premium announcements, another investment avenue, REITs funds, is signaling an undeniable trend towards substantial premiums as wellThis phenomenon is indicative of a robust engagement from institutional investors, reflecting a growing appetite for this asset class.
The fund landscape witnessed a significant uptick, with the highest premium observed to date being attributed to the Huaxia Beijing Affordable Housing REIT, which emerged with a staggering premium of 52.95%. Following closely, the CICC Xiamen Affordable Rental Housing REIT also demonstrated premiums surpassing 50%. Other products, such as the Harvest Clean Energy REIT and the YinHua ShaoXing Raw Water REIT, displayed premiums exceeding 40%. However, it should be noted that several other funds are experiencing discounts greater than 20%, showcasing a mixed market sentiment.
Some public fund managers assert that, after a valuation uplift and sector rotation in the secondary REITs market, the current valuations are relatively reasonableThe predictable income streams still retain appeal for institutional investors, maintaining a bullish outlook towards a potential upward trend in market performanceNevertheless, it is essential to remain cautious about the ramifications of sector rotation and price differentiation that could adversely impact absolute returnsA strategy focusing on undervalued REIT projects in both primary and secondary markets is recommended, coupled with a higher tolerance for market volatility and prioritizing long-term investment strategies.
The Rise of REITs
From December 10, 2024, to the present, the China Securities REITs Total Return Index has recorded an impressive increase of 7.86%, showcasing robust interest and growth within the sector.
During this period, the Harvest JD Storage Infrastructure REIT led the market with an astounding growth of 25%. On December 27, it was announced that Liu Qiangdong, the founder of JD Group and one of the original rights holders of the fund, intended to increase his stake in the secondary market by no more than 100 million yuan, resulting in a marked rebound in the fund's net value
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Following suit, the Huaxia China Resources Commercial REIT and the Hongtu Innovation Shenzhen Talent Housing REIT both approached growth rates near 20%. Even as we transition into 2025, amidst a decline in the equity market, the China Securities REITs Total Return Index still managed an uplift of 3.31%. Several fund companies have since issued risk warnings owing to the significant growth in their respective REITs in the secondary market.
According to public fund representatives, the current quality and stability of the underlying assets in REITs, coupled with the distinct scarcity of some assets, are becoming more pronouncedThe attractiveness of higher-dividend yielding public REITs is increasedFurthermore, aligning with the turn of the year, there’s a discernible trend where year-end funds are rushing to invest along with a growing allocation demand from fixed income-centric funds seeking high dividend assets, pushing the public REITs market further upwards.
Xu Chenglong, the fund manager for the CITIC Construction Investment State Power Investment New Energy REIT, has noted that the dividend yield from public REITs typically exceeds that of government bonds, providing investors with the possibility of obtaining higher and more certain returns during a declining interest rate cycleThe national policy has included public REITs as part of investment options for FOF funds and social security funds, while also promoting the incorporation of public REITs into the Shanghai-Hong Kong Stock ConnectSuch measures will undoubtedly bring more incremental capital into the public REITs market, further recognizing the long-term investment value of these instruments.
The heat in the secondary market is also driving an influx of funds into the issuance side
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On January 9, the Guotai Junan Jinan Energy Heating REIT announced that the number of effectively subscribed fund shares by public investors reached 12.202 billion, an astounding 813.44 times the initial public offering figureSimilarly, the fund share issuance announcement dated January 3 revealed that 80 institutional investors participated in the offline offering, with management targeting 234 distribution objects, where the total effective subscriptions amounted to around 4.934 billion shares, yielding an extraordinary 140.96 times the initial offline offering of 35 million shares—marking a new high for public REITs projects in the past two years.
Sharp Contrasts in Premiums and Discounts
As bullish market sentiments rise, significant discrepancies in premium statuses are also prevalent in REIT productsBy January 16, the Huaxia Beijing Affordable Housing REIT peaked with a premium of 52.95%, while the CICC Xiamen Affordable Rental Housing REIT followed suit with a similar trendOther REITs, such as Harvest’s Clean Energy REIT and YinHua ShaoXing Raw Water REIT, exhibited over 40% premiums, poring a picture of optimism among investors.
Conversely, the Huaxia China Communications Construction High-Speed REIT has surpassed a discount greater than 45%, while others, including the CICC Anhui Transportation Control REIT and the Ping An Guangzhou Transportation Guanghe Highway REIT, are also experiencing different degrees of discountThis heterogeneity exhibits divergent investor sentiments across various REIT sectors.
Huabo Securities articulates that, while the public REITs of 2024 have performed exceptionally well on the secondary market, disparities remain among various industry performances
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The move toward a normalized issuance framework and an expansion of the underlying asset segments are expected to enhance the market scale and liquidity furtherFuture recommendations include focusing on asset types that demonstrate high stability and certainty while observing the recovery of the economy and the stabilization of certain industries.
Zhongshan Fund has noted that after the REITs secondary market underwent a round of valuation uplift and industry rotation, the valuations are now at a relatively reasonable levelThe appealing dividend yields motivate institutional allocation, with anticipations suggeting that the market will continue a volatile upward trajectoryFuture investments should consider strategically participating in selectively curated funds prepared for offline placements, while remaining vigilant against the negative implications of differentiation in sectoral performance and pricing on absolute yieldIt may be prudent to participate in undervalued REIT projects in both primary and secondary markets, elevating one’s tolerance for secondary market fluctuations while laying a robust foundation for long-term investing.
Public Funds Expect More "First Orders" in Issuance Scope
On January 13, during the 2025 work conference, which recapped activities from the past year, significant discussions revolved around enhancing systematic revisions, and formulating methodologies for 2025's prioritiesWu Qing emphasized the need to strengthen functional support to significantly foster economic recovery
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