Lower Interest Rate Narrative in US Intact

The latest CPI numbers from US shows inflation has slowed and is about 1% above the Fed's desired rates.

Market has intrepreted that as good news and a rally has occurred. To many, a low CPI numbers mean an eventual lowering of US interest rates. So how can us investors benefit from a lowering of interest rates which affects USA?

Main Beneficary are the Overleveraged Property Companies

Lower interest rates means the interest cost of debts is lower.

Secondly, lower interest rates mean risk free rates used is lower. For property valuations, the value of a property and the risk free rate has an inverse relationship. The lower the interest/risk free rate, the higher the property value. A higher property value means a company leverage ratio is lower.

One beneficary group are the US REITs. Year to date, share prices have fell 50-70% due to the fear of rising interest rates. Now that the fear has turned to reality and is now u-turning, my belief is that these US REITs will see a positive re-rating of 70-80%.

Many are listed in Singapore which we investors can buy and own. Furthermore, their current dividend yields are high averaging 12% and above, with some degree of stability. Lastly, with a reduction in risk free rate, the leverage ratio of these REITs will fall, taking them further from MAS's regulatory leverage ratio limit of 50%

Hence, the US REITs space is something I will keep evaluating. My view is that they will be the main beenficary of the lowering of interest rates in USA.