Real Assets take an early holiday

In this December 11th edition of Liquid Real Assets (LRA) Market Update, John Vojticek and team take a look at how public markets viewed listed real assets (real estate, infrastructure, natural resources and commodities).

Click below for the full report, including our Market Commentary, Why it Matters and:

Macro Dive:

• Inflation alphabet
• State of Employment
• Ease up

Real Assets, Real Insights:

• Looking ahead (Real Estate)
• Data Centers go off-grid (Infrastructure)
• A lithium lift for Milei (Commodities)

Market Commentary

Global equities fell in our review period, after hitting an all-time high on December 6th. Commodity Futures was the only sector in Real Assets with positive performance for the period as prices for cocoa and natural gas rose. In geopolitics, the war in Ukraine continued to grind on while pressure for a negotiated settlement rose ahead of Trump’s return to the U.S. presidency. In a dramatic turn of events, rebels in Syria took advantage of Russia and Iran’s distractions to embark on a lightning two-week take down of the Assad regime. The opposition quickly moved to stabilize government functions and assure the global community of their intentions to build an inclusive state for the Syrian people. The U.S. struck ISIS targets in the aftermath, while Israel took the opportunity to seize control of a buffer zone in Southern Syria, hitting weapons caches and military facilities throughout the country to prevent the flow of rockets and chemical weapons to the black market. Should Syria form a functional government and return to the global economy, it could provide some regional stability as millions of refugees could return from Turkey. The country also offers a potential route for Middle East gas pipelines to reach Europe. Equity market volatility, as measured by the VIX index, was relatively unchanged in the period. Inflation break-evens rose marginally during the week, moving up 4 basis point (bps) for the 5-year and 5bps for the 10-year. The price of gold also rose $86 to $2,718 per ounce, while oil prices rose $2 per barrel to $70.29. The U.S. dollar strengthened against the major currencies and credit spreads tightened by 4bps to 102bps for BBB-rated credits and by 11bps to 280bps for sub-investment grade corporate credit. (1)

Against this backdrop, Real Assets trailed global equities this week. Global Infrastructure securities led the decline for the week after outpacing other liquid real assets year to date (YTD). Global Real Estate securities dropped less than Global Infrastructure securities, while Natural Resource Equities and U.S. TIPS (Treasury Inflation-Protected Securities) lost the least. Within Global Real Estate securities, the Americas Hotels and Hong Kong Investor segments were the only positive areas. Within Global Infrastructure securities, companies in Asia ex-Japan, Australia, and the Latin American airport segment posted positive performance while Americas Communication companies led the decline. Precious, Bulk, and Base Metals & Mining companies led Natural Resource Equities for the week; however, their rise was not enough to offset weakness in the Energy and Agriculture segments. Commodity futures saw Cocoa, Natural Gas, Coffee, and Corn lead the way while Aluminum, Hogs, Nickel, and Cotton lost the most. (2)

Why it matters: The changes in Syria could increase or decrease regional stability, which in turn could impact global energy markets and trade. Capital markets continue to look for signals from the upcoming U.S. administration to optimize portfolios accordingly. To the extent that “people are policy,” nominations for the Secretary of State, Treasury, and SEC appear to be competent as well as supportive of Trump’s “America First” policies. Tariffs remain high on the wall of worry and will most likely fall somewhere in between an all-out trade war and a less-impactful threatening cudgel to achieve other goals, but the devil will be in the details as they say.

In the full report:

Macro Dive: This week, we review a variety of inflation metrics, weekly jobs data, and a roundup of central bank activity.

Real Assets, Real Insights: In this segment, we first look at a recent report from our DWS private market counterparts regarding their global real estate outlook. Then we continue discussing our theme of data center energy demand. Finally, we look at lithium production in Argentina.

Click here to read the full report.

This report is for professional/institutional investors only. To access, please validate accordingly and select "Global English” site for a smoother journey.

(1) Source: Bloomberg as of December 13, 2024

(2) Source: Bloomberg as of December 13, 2024

Any mentions of specific properties or securities are for illustrative purposes only and should not be considered a recommendation. Past performance is not a guarantee of future results. The opinions and forecasts expressed are those of the authors and may not come to pass. Forecasts are based on assumptions, estimates, views and hypothetical models or analyses, which might prove inaccurate or incorrect.?Forecasts are not a reliable indicator of future returns. DWS does not intend to promote a particular outcome to the U.S. election (or other countries’ elections) due to take place. Readers should, of course, vote in the election as they personally see fit. All investments involve risks, including potential loss of principal. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index.

Glossary

One basis point (bps) equals 1/100 of a percentage point.

A rating is a standardized assessment of the creditworthiness of the issuer and its debt instruments by specialized agencies. The main three rating agencies are the Moody's (Aaa over Baa1 to C, best to worst) , S&P (AAA? over BBB+ to D, best to worst) and Fitch (AAA over BBB+ to D, best to worst).

Credit spread is the difference between the yield (return) of two different debt instruments with the same maturity but different credit ratings.

Inflation is the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling.

Investment grade (IG) refers to a credit rating from a rating agency that indicates that a bond has a relatively low risk of default.

The U.S. Securities and Exchange Commission (SEC) is an independent federal government regulatory agency responsible for protecting investors, maintaining fair and orderly functioning of the securities markets.

Treasury Inflation-Protected securities (TIPS) are a form of U.S. Treasury bonds designed to protect investors against inflation. These bonds are indexed to inflation and pay investors a fixed interest rate as the bond's par value adjusts with the inflation rate.

The U.S. Federal Reserve, often referred to as "the Fed," is the central bank of the United States.

The CBOE Volatility Index (Vix) is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index. It is a popular measure of the volatility of the? S&P 500 as implied in the short-term option prices on the index.

Yield?is the income return on an investment referring to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.

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