Public REITs have staged a sustained rebound recently, with policy expectations, fresh capital inflows, and depressed valuations converging to sharpen the case for bottom-fishing opportunities. On the incremental capital front, the maiden batch of index funds continues to build positions, while prospective catalysts include broader index product expansion and an enlarged scope for insurers to invest in commercial real estate REITs. On the issuance side, the allocation mechanism for a new wave of commercial property REITs is likely to be refined, potentially reshaping the investor base for the better.

In parallel, the equity market's rotation toward high-dividend assets is gaining traction, and the updated insurance capital rules further underscore the demand for stable investment income, benefiting REITs' elevated distribution profiles. Property-rights REITs remain down 8.2% year-to-date, with industrial parks and logistics warehousing offering cash distribution yields of 5.7% and 5.4%, respectively—valuations still sitting at low levels. With fundamentals broadly steady, the window to accumulate at these depressed levels appears compelling.

The REITs market swung lower before recovering in August, with sustained gains emerging from August 18. As of August 26, property-rights REITs were up 4.1% for the week, with industrial parks and warehousing climbing 7.4% and 4.4%, respectively. On August 21, the release of the insurance companies' asset-liability management measures reinforced the requirement for insurers to better align asset yields with liability costs.

Index funds are steadily building positions at the lows, and further policy support for the REITs market remains on the horizon. The first four REITs index funds, launched in July, have been accumulating holdings, with net asset values now ranging from 1.0006 to 1.0090, delivering positive returns and underpinning the market's floor. As of August 26, the number of hybrid secondary bond funds incorporating REITs into their investment mandates has grown to 43, expanding by an average of five to six funds per month. Looking ahead, the issuance of a new batch of commercial real estate REITs is expected to pilot a more market-driven allocation mechanism, curbing the share of short-term speculative capital. Policies broadening insurers' access to commercial real estate REITs and further fund expansion are also anticipated. The entry of incremental capital is likely to shift the market from a zero-sum, existing-stock game toward a two-way expansion of both supply and demand.

The equity market's style rotation is underway, with high-distribution attributes aligning well with the new insurance regulations. In equities, momentum in sectors like tech has cooled recently, while the CSI Dividend Index has risen 14.3% since early July. The insurance asset-liability management measures introduce a net investment income coverage ratio for life insurers, requiring that the average net investment income over the past three years cover at least 100% of the guaranteed cost of liabilities over the same period. In a low-rate environment, as yields on traditional fixed-income assets keep declining, insurers' demand for high-yielding assets is intensifying. Property-rights REITs currently offer an average cash distribution yield of around 4.6%, with industrial parks and warehousing at 5.7% and 5.4%, respectively—closely matching insurers' income requirements.

Valuations remain relatively depressed, while fundamentals stay broadly stable, making the risk-reward increasingly attractive. As of August 26, property-rights REITs are still down 8.2% year-to-date, with industrial parks and logistics warehousing off 18.7% and 14.3%, respectively. Their P/NAV ratios stand at just 0.87x and 0.95x, while the risk premium—the spread between property-rights distribution yields and the risk-free rate—sits at a historical low of 95.9% percentile. The earlier correction has largely priced in concerns over supply expansion and operational pressure on certain assets. Fundamentals in 2026Q2 have broadly met expectations, and the combination of low valuations and high distribution yields offers a solid margin of safety.

Investment strategy should center on three main tracks: counter-cyclical sectors, high-growth and marginally recovering segments, and issuers with strong expansion demands. On the secondary market front, as supply-side pressure eases and demand-side policies guide hybrid bond funds and index funds to enter in an orderly fashion, the supply-demand dynamics in the second half are poised for marginal improvement. We advocate three key strategies: liquidity, momentum, and issuer strength. Specifically, focus on three threads: (1) counter-cyclical sectors with resilient earnings, including policy-backed rental housing and municipal environmental projects, as well as more stable energy sub-sectors like hydropower and thermal power; (2) high-growth sectors aligned with national strategy, such as data centers, along with assets witnessing marginal recovery—including select warehousing and logistics properties with improving supply-demand balances and leading operational efficiency, plus highway projects benefiting from stronger regional economic activity and recovering traffic volumes; and (3) issuers with strong expansion demands and high-quality reserve assets.