In case you missed it:Asia-Pac This week’s highest IP &Conviction

Over the past month, global bond yields have continued to move higher, with theyield on US 10-year Treasury bills (possibly the most important price in thefinancial universe) finally breaching the 2016 high of 2.64%. While yields havesubsequently retreated a little, the risk has increased that they now movetowards 3% - the top of the range seen over recent years.

We became more positive on the REITs in July last year upgrading WFD, VCX,SCG, GPT and DXS. Encouragingly, the REITs returned 11.2% through to 31December, well ahead of the broader market (+7.7%) i.e. 350bps ofoutperformance. This was supercharged by the WFD bid into year-end asexpected. The retail REIT thesis was predicated on: i) the top five malls for eachREIT are typically 37-73% of capital diluting the impact from portfolio tails;ii) when the sector is back at NTA we believe the market is underappreciatingpotential for alternate use; and iii) strong pricing for quality assets. Whilst thisdeal never printed, we have seen very strong pricing for direct asset transactionsin the past six months. With the January bond led sell-off reopening some ofthese value opportunities, we maintain our positive sector call.

After resurgent strength in commodity prices over the past three months, weupgrade our commodity and equity earnings forecasts. The biggest change is alift in investor sentiment towards global and Chinese demand in 2018. Weupgrade near-term forecasts to reflect these events and expect consensusupgrades to support the stocks during upcoming results season. Further out,many of our key theses, such as downside to bulks on falling Chinese steeldemand, are intact.

Airlines’ forward schedule matters. In our last three editions of Follow the seats,we were spot on for 22 out of the 28 travel trends for China tourism; five were atleast in the same direction; and only one (for China-Thailand) was vastlydifferent, due to a larger-than-expected contraction in China-Korea seats.