Base Interest Rate at 0% Era... Emerging REITs and High Dividend Stocks

In Low Interest Rate Periods, High Dividends Over 3% Are Advantageous... REITs Also Exceed an Average of 6%

[Asia Economy Reporter Minji Lee] Amid the ongoing sharp decline in the domestic stock market due to the impact of the novel coronavirus infection (COVID-19), the Bank of Korea has lowered the domestic base interest rate to the 0% range for the first time in history. The securities industry believes that in the era of ultra-low interest rates, it is advisable to focus on high-dividend and REIT stocks.

[Image source=Yonhap News]

According to the industry on the 17th, interest in investment destinations related to the zero interest rate era is increasing. The day before, the Bank of Korea held an emergency Monetary Policy Committee meeting and cut the base interest rate from 1.25% per annum to 0.75%, a 0.5 percentage point reduction. This was due to growing concerns that prolonged COVID-19 could quickly spread financial market instability to the real economy. This is the third time the Bank of Korea has held an emergency monetary policy meeting to respond to the market, following September 2001 (0.50 percentage point cut) after the 9/11 terrorist attacks and October 2008 (0.75 percentage point cut) during the financial crisis.

On the same day, the Bank of Korea also indicated an increased possibility of a global economic recession. Bank of Korea Governor Lee Ju-yeol said, "It is impossible to provide specific figures in a situation where the duration of COVID-19’s impact is unknown." Since the previously forecasted 'V-shaped recovery' is no longer feasible, the ultra-low interest rate policy is expected to continue for a long time.

The securities industry advises that at this point, attention should be focused on REITs and high-dividend stocks. Under a low interest rate environment, it is more advantageous for investors to purchase high-dividend stocks with dividend yields exceeding 3% rather than depositing money in commercial banks.

Researcher Lee Kyung-soo of Hana Financial Investment explained, "In a situation where risk aversion has increased, it is better to approach the financial sector universe with high dividend appeal rather than dividend stocks with excessive price declines," adding, "It is important to buy related high-dividend stocks in advance before the March interim dividend and fiscal year-end dates to increase returns."

It is also worth expanding interest to REITs with an average dividend yield exceeding 6%. Although stock prices have been sluggish due to the economic downturn, their high dividend appeal is recognized. Researcher Lee Kyung-ja of Samsung Securities said, "The average dividend yield of domestic REITs has risen to a level similar to that of Singapore REITs," adding, "Even amid this year’s severe market crash, Singapore REITs showed steady returns, and in the U.S. market, REITs alone showed a sharp rise."

In the exchange-traded fund (ETF) market, demand for income-type ETFs containing income assets such as high-dividend stocks, preferred stocks, etc., which can respond to economic slowdown, is expected to increase. Researcher Moon Nam-jung of Daishin Securities advised, "With a diverse asset composition including high-dividend stocks, preferred stocks, bonds, REITs, and closed-end funds, it is possible to pursue low price volatility and high dividend yields."

This content was produced with the assistance of AI translation services.