"ARE REITS BETTER HEDGES AGAINST INFLATION THAN STOCK?" EVIDENCE FROM ASIAN MARKETS.

Abstract

As the world economy is observing an accelerating rate of inflation, investors are worried about protecting their wealth against inflation. However, empirically, not all of the investment assets can be inflation hedges. While real estate is found to be good hedges against inflation, stocks are mainly found to provide a perverse hedge again inflation. REIT markets have emerged as a new business model in Asia. It has enabled institutional as well as individual investors to engage in a wider range of investment tools and diversify their portfolio, as a result. This raises two important questions: “Are REITs inflation hedges?” and “Can they provide a better tool against inflation as compared to traditional asset classes such as property stocks and common stocks?”. This study aims to find the answers by analyzing four markets in Asia: Singapore, Hong Kong, Japan and Malaysia. It was observed that the results differ across these four markets. Singapore REITs provide an effective hedge against both the expected and unexpected inflation. Hong Kong REITs could hedge against the both components of inflation in high inflation periods. The hedging capabilities of REIT stocks in Japan and Malaysia are insignificant. In addition, it was found that REIT stocks outperformed property stocks in Singapore and Japan markets. Nevertheless, they are indistinguishable from common stocks in terms of inflation hedging.