Markets Insights

Focus on US-China trade tensions

Sentiment likely to remain fragile as investors assess potential impact on global growth

As Singapore's corporate earnings season enters the home stretch, the latest US-China trade skirmish that has deepened tensions between the giant economies and sparked market jitters is likely to remain the focus for investors.

On Friday, the US increased tariffs on Chinese imports and trade talks in Washington ended with no breakthrough, although Chinese Vice-Premier Liu He maintained that talks between the two largest economies have not broken down.

Instead, he referred to last week's tensions as "a normal twist in the negotiations between the two countries", which was inevitable.

"Market sentiment may remain fragile, following heightened US tariffs on Chinese goods on May 10, as investors keep a close watch on US-China trade developments and assess potential implications for global growth," FXTM market analyst Han Tan noted.

Investors in Singapore can expect a quiet week when it comes to economic data releases with last month's balance of trade and non-oil domestic exports data to be released later in the week on Friday.

As for the reporting season for the three months ended March period, seven of the Straits Times Index's (STI) 30 components will be issuing their scorecards this week.

Of the lot, telecommunications player Singtel will be reporting fourth-quarter and fiscal 2018 results on Wednesday.

First-quarter earnings for transport giant ComfortDelGro and agri-business firm Golden-Agri Resources will be out tomorrow, while SembCorp Industries reports on Wednesday.

This week will also see aviation-related constituents of the benchmark index - Sats, Singapore Airlines and ST Engineering - release earnings for the quarter ended March 31 on Thursday.

In a recent outlook report, UOB Kay Hian analyst K. Ajith said that the brokerage has maintained its market weight on the sector.

The analyst said that Sats' core net profit is expected to rise 20 per cent, underpinned by growth from the non-aviation food segment, but expects Singapore Airlines to miss earnings expectations.

"For ST Engineering, we expect low-to-mid single-digit earnings growth due to guidance on higher order book recognition in 2019, lower financing costs and a likely improvement in the marine sector's margins," Mr Ajith added.

UOB Kay Hian's top picks for the sector are Sats and ST Engineering. It has "buy" calls on both counters with a target price of $5.60 and $4.70 respectively.

Over the weekend, Keppel Offshore & Marine secured a contract from Orsted, a Danish renewable energy company, for two offshore wind farm substations worth more than $150 million. This could spur some interest in the counter.

Key data releases in China include Wednesday's industrial production and retail sales, and Thursday's new home prices.

Investors are likely to look to China's industrial production figures for further signs of the Chinese economy stabilising, which may help offset recent weakness in theyuan, Mr Tan said.

"However, it's what's to come on the trade front that may drive risk appetite, considering what tit-for-tat tariffs between the US and China may do to the world at large."

Malaysia's first-quarter GDP data is due tomorrow and Hong Kong's on Wednesday.

With a number of key monetary policy decisions released by central banks in the Asia-Pacific last week, this week leaves just Bank Indonesia's policy decision on Thursday.

A Bloomberg survey has shown that Indonesia's central bank is expected to keep the seven-day reverse repo policy rate unchanged at 6 per cent, UOB economist Alvin Siow noted.

While most markets will have a full week of trading on their hands, Hong Kong is closed today for a holiday and resumes trading tomorrow. Australia goes to the polls on Thursday.

A version of this article appeared in the print edition of The Straits Times on May 13, 2019, with the headline 'Focus on US-China trade tensions'. Print Edition | Subscribe