Analysts stay cautious, pointing to risks in US-China phase one trade deal

Investors across the world breathed a collective sigh of relief after the United States and China signed a partial trade agreement, achieved after 18 months of negotiations.

Chinese President Xi Jinping declared it "good for China, the US and the whole world". US President Donald Trump said the pact would be "transformative" for the US economy.

The Straits Times Index rose 0.5 per cent to 3,273.72 yesterday. That was its highest closing level since Nov 7. The MSCI Asia Pacific Index advanced 0.2 per cent, a day after US benchmark S&P 500 set an intra-day record for the sixth consecutive trading session.

The formal signing of the phase one deal has been widely seen as a temporary truce between the world's two largest economies, which have been engaged in a tit-for-tat tariff war since 2018, uprooting supply chains, disrupting trade flows and dampening economic growth across the world.

Market focus will now turn to the progress on the implementation of promises made in the deal. Investors will seek signs of the agreement's success in economic data and company earnings.

Mr Nick Marro, lead analyst on global trade at The Economist Intelligence Unit, said: "The deal has some encouraging language, but its provisions still leave open questions around the severe structural issues in the US-China trade relationship.

"This, combined with likely difficulties in implementing many of these commitments, suggests that there is a high risk that the deal might fall apart later this year."

In Singapore, business leaders and analysts also sounded a cautious note, advising that companies and investors keep in mind the risks surrounding the deal.

While appreciating the phase one deal as a "step in the right direction", Mr Ang Wee Seng, executive director of the Singapore Semiconductor Industry Association, said there may not be much of a direct impact on the semiconductor industry at this stage. "Most companies remain cautiously optimistic about business recovery," he said.

 
 
 

Singapore Business Federation CEO Ho Meng Kit stressed the importance of good trade relations between the US and China, given that they are Singapore's top trading partners, which between them account for more than 20 per cent of the Republic's merchandise trade.

He said: "Future phase two negotiations will be keenly monitored by the business community. However, no breakthrough is expected in 2020 as the US heads into the election year. Therefore, we expect the US-China trade tensions to continue to affect business sentiment this year."

 
A version of this article appeared in the print edition of The Straits Times on January 17, 2020, with the headline 'Analysts stay cautious, pointing to risks in deal'. Print Edition | Subscribe