When you first start investing, you read all the financial press.
Because you want to try and learn from all the experts.
But as time goes on, you may come to find, that much of what you read can often mislead you.
That’s why at Profit Watch we tend to read the economy through the charts.
So if you’re reading a bullish or bearish viewpoint, try and bring up a relevant chart. The weight of money rarely lies.
One way of reading the economy through the charts is by tracking the real estate investment trusts, (REITs).
Think of it this way: A REIT is basically a rent collector. And the rent will only mirror what’s going on in the general economy.
If the economy is slowing, that makes it difficult to raise rents. And if business really is struggling, it might first start to show up here, in rising vacancy rates for industrial and office space.
And the flip side is, rents can only continue to rise in a steady to strong economy.
So, you could start to follow a few REITs as they give one a bit of feel for how the economy is tracking.
To get started, let’s cover one briefly here with Dexus Property Group [ASX:DXS].
This company has a property portfolio of $15.6 billion, as well as funds under a management unit worth $16.2 billion. On top of that, it has around $9.3 billion worth of development projects in the pipeline. It’s one of the larger REITs on the ASX, though not the biggest.
When the company reported last year, cash flows were growing at 5.5%. And vacancy rates in Sydney and Melbourne were at record low levels.
Let’s bring up the chart:
First of all, this is the monthly chart. With a stock like a REIT, we’re less interested in the daily moves. Not always, but REITs are generally traded for the longer journey.
What’s important to note, since the March low of 2009, the share price has continued to make higher lows. Year in, year out. That suggested that rents were improving. That is only likely to ever happen in a steady to growing economy.
So despite what you might have read over the last decade or so (calling for a collapse), the weight of money was suggesting otherwise. And until a stock like this starts breaking below lows from prior years, you can’t call a downturn with any degree of confidence.
What now for DXS?
All stocks must retrace to consolidate prior gains. And Dexus has done just that. After retracing from the July high last year, the chart is delicately poised at present.
From the low we’ve had a number of inside bars. But should it break and hold above $12.40 or so that would confirm a higher low on the chart. And then give you a bit of a reference point to gauge how the economy might be faring.
So rather than read all the analysis about the economy, follow the weight of money. Let the market be your guide.
Dexus could be one for the watchlist.
If nothing else, to just to get an extra indicator on how the broader economy might be tracking.
Anyway, if you want to keep up to date on what’s happening in markets and a whole lot more, you can subscribe to the Profit Watch newsletter here.