US REITs Continued To Rebound Last Week As Stocks Tumbled

Real estate investment trusts (REITs) led the major asset classes last week as investors dumped stocks, based on a set of exchange-traded funds. Equities in emerging markets took the biggest hit as escalating tensions in the US-China trade war triggered a rise into safe-haven assets.

Vanguard Real Estate (VNQ) delivered last week’s top performance, adding 1.2% for the trading week through Friday, Aug. 2. The gain marked the fund’s second consecutive weekly advance, lifting the ETF to just below a record high. The gain stands out amid last week’s revival of risk-off sentiment, prompting The Wall Street Journal to report that REITs are exhibiting a fresh bout of “resilience.” A review over the weekend of the asset class noted that “after a sluggish end to 2018, real-estate investment trusts are showing promise again.”

By contrast, stocks in emerging markets fell hard last week. Vanguard FTSE Emerging Markets (VWO) tumbled 4.7%–the ETF’s deepest weekly loss since May. The latest round of selling is linked with the escalation in the US-China trade conflict via President Trump’s decision on Friday to slap yet more tariffs on Chinese imports.

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“The risk to emerging-market assets in the near term is skewed to the downside,” says Patrick Wacker at UOB Asset Management in Singapore.

The start of this week’s trading doesn’t look any kinder on the trade-war front following the slide in China’s currency, which crossed a politically sensitive point vs. the US dollar on Monday.  “I think this is clearly a retaliation that in the past China has refrained from doing,” advises Claudio Piron, co-head of Asia rates and foreign exchange strategy at Bank of America Merrill Lynch Global Research.

Meanwhile, the latest selling bias weighed on an ETF-based version of Global Market Index (GMI.F). This unmanaged benchmark, which holds all the major asset classes (except cash) in market-value weights, fell 1.9% last week—the index’s deepest weekly loss so far this year.

Last week’s trading action strengthened REITs’ performance leadership for the one-year window. VNQ is up 13.4% over the past 12 months through Friday’s close – well ahead of the rest of the major asset classes.

The biggest one-year loss remains firmly entrenched in broadly defined commodities: iShares S&P GSCI Commodity-Indexed Trust (GSG) is down 12.3% vs. the year-ago price.

GMI.F is holding on to a modest gain for the one-year window, posting a 3.4% total return.

Despite the latest setback in stocks around the world, profiling the state of momentum for the major asset classes still reflects a bullish bias overall. The analysis is based on two sets of moving averages for the ETFs listed above. The first compares the 10-day moving average with its 100-day counterpart — a proxy for short-term trending behavior (red line in chart below). A second set of moving averages (50 and 200 days) represents an intermediate measure of the trend (blue line). As of Friday’s close, the two indicators continue to reflect widespread positive momentum. The question is whether the latest escalation in the US-China trade conflict is one too many hurdles for the crowd to overlook?

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By James Picerno