Markets rally on optimism over US-China trade deal

A dealer monitoring stock prices at KEB Hana Bank in Seoul. Markets from Malaysia to China are oversold, analysts say.
A dealer monitoring stock prices at KEB Hana Bank in Seoul. Markets from Malaysia to China are oversold, analysts say.PHOTO: EPA-EFE

Receding fears of US recession, dovish Fed stance also play a role

Fresh hopes of a breakthrough in United States-China trade talks that concluded yesterday stoked a rally in stock markets from Europe to Asia and US futures for a fourth straight session.

China's Foreign Ministry said results of the talks would be released soon. The negotiations, which unexpectedly extended into a third day, fuelled optimism that the world's largest economies can avoid an all-out confrontation that would disrupt the global economy.

Investors piled back into equities as fears of a US recession receded after last Friday's stellar December non-farm payrolls report and Federal Reserve chair Jerome Powell's more dovish comments, which raised hopes the US central bank will pause further interest rate hikes until at least the middle of this year.

"The STI (Straits Times Index) rallied 145 points in the past four days. It's the sharpest rebound we've seen in the past two months. 3,200 is the next immediate resistance," CMC Markets analyst Margaret Yang noted.

"Singapore's fourth-quarter corporate earnings season starts in about two weeks. That will play a big role in determining market direction."

Singapore closed 1.12 per cent higher yesterday, but is still 13 per cent down from its 52-week peak of 3,615.28 on May 2 last year.

Markets from Malaysia to China are oversold, analysts say, having lost between 12 per cent and 33 per cent from their 52-week high.

"Local companies' earnings will likely moderate at a slower pace as manufacturing and exports have been slowing in the last few months. But if they turn out positive earnings surprises, and the trade war ends and global economic recovery begins, the STI reaching 3,500 this year isn't entirely impossible," Ms Yang said.

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The STI rallied 145 points in the past four days. It's the sharpest rebound we've seen in the past two months. 3,200 is the next immediate resistance. Singapore's fourth-quarter corporate earnings season starts in about two weeks. That will play a big role in determining market direction.

CMC MARKETS ANALYST MARGARET YANG

Hopes of more stimulus injected to shore up China's slowing economy fuelled the rebound in equities and crude oil prices.

Pictet Wealth Management senior Asia economist Dong Chen noted: "While last week's move by the central bank will inject liquidity into the Chinese banking system... we expect the government to engage in more policy easing, such as corporate and value-added tax cuts, fiscal support for infrastructure investment and relaxation of property market restrictions."

Trading opportunities have emerged with several property developers trading at distressed valuations, following the July 6 cooling measures.

City Developments rose 0.8 per cent, CapitaLand edged up 0.3 per cent, Wing Tai gained 0.5 per cent, Far East Orchard jumped 1.7 per cent, and Chinese developer Yanlord Land climbed 3.2 per cent.

Stronger oil prices helped boost sentiment in Singapore's banks and offshore marine sector. OCBC rose 0.96 per cent, DBS jumped 1.38 per cent, UOB gained 1.51 per cent and Keppel Corp edged up 0.3 per cent.

UBS Global Wealth Management equity analyst Lee Wen Ching said she prefers banks because "this sector leads earnings growth in Singapore".

"Consensus forecasts 2019 earnings growth of 6 to 10 per cent for the sector. Banks are the clearest beneficiaries of rising interest rates, and excess capital buffers allow scope for higher dividends," she added.

Technology, electronics, industrial and consumer stocks are also getting a lift from the trade deal hopes. Venture Corp jumped 4.6 per cent. Even Genting Singapore and Singapore Airlines got a new lease of life, gaining 1.98 per cent and 1.3 per cent respectively.

A version of this article appeared in the print edition of The Straits Times on January 10, 2019, with the headline 'Markets rally on optimism over US-China trade deal'. Print Edition | Subscribe